Pound Forecast: GBP/USD Near 1.35 After Inflation Surprise

Modified: Wednesday, 20 August 2025 11:49 BST - Written by David Woodsmith

STORY LINK Pound Forecast: GBP/USD Near 1.35 After Inflation Surprise

The Pound to Dollar (GBP/USD) exchange rate dipped to test support below 1.3500 before trading just above this level on Wednesday. The Pound found some relief as UK inflation rose more than expected, with headline CPI climbing to 3.8% in July, above forecasts of 3.7% and up from 3.6% in June.

The increase was driven by a sharp jump in air fares and renewed strength in food and energy prices, leaving markets questioning the prospect of further Bank of England rate cuts this year. The focus now turns to how the UK bond market absorbs the data and whether higher yields will ultimately benefit or undermine Sterling.

According to UoB, “Although our ‘strong support’ level at 1.3485 has not been breached yet, upward pressure has eased. From here, we are revising our view to neutral, and now expect GBP to trade in a range, most likely between 1.3415 and 1.3585.”

According to Scotiabank, “The multi-month trend remains bullish, confirmed by the early August pullback that reinforced support in the mid-1.31s. Momentum is in bullish territory but only modestly so.”

Scotiabank added, “We look to a near-term range bound between 1.3480 support and 1.3580 resistance.”

State Street’s Bart Wakabayashi said, “If a Ukraine deal is reached that involves European countries taking up the burden, a relief rally could result in outflows from the euro and the British pound. You would suspect that would flow into the dollar, so we could see dollar strength."


Scotiabank commented, “Markets continue to play the waiting game ahead of Friday’s Powell comments.”

Danske Bank noted, “While we do not anticipate a sharp deterioration in the economy – and therefore do not expect the Fed to deliver jumbo cuts as it did around the same period last year – such an outcome remains a tail risk that, if realised, would significantly weigh on the USD.”

Lombard Odier chief economist Samy Chaar said, “What we're going to look at in the UK is really the labour market which is kind of telling you that the BoE has room to cut. The second thing we'll watch in the UK is inflation which kind of tells you that the BoE should not cut.”

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TAGS: Pound Dollar Forecasts