Pound Sterling Falls Against Euro, Dollar as GBP Risk Profile Increases

Modified: Thursday, 21 August 2025 08:15 BST - Written by David Woodsmith

STORY LINK Pound Sterling Falls Against Euro, Dollar as GBP Risk Profile Increases

The Pound to Dollar exchange rate (GBP/USD) jumped to 1.3510 after the UK inflation data, before trading just below the 1.3500 level amid a firm dollar.

At 8am Thursday, live FX rates put GBP/EUR at 1.15597 (+0.02%) and GBP/USD at 1.34384 (-0.2%).

Bank of England (BoE) divisions are liable to intensify while the 10-year bond yield declined to 4.71% from 4.75%.

According to ING; “we doubt today's CPI release will alter much of the BoE's current thinking. GBP/USD risks sinking back to the 1.3470/80 area today.”

UoB commented; “Downward momentum continues to increase, and today, there is a chance for GBP to drop to 1.3460. At this time, GBP still does not appear to have enough momentum to reach 1.3415.”

The data could provide near-term Pound Sterling support amid expectations of high yields.

According to MUFG, however; “Over the long-run more persistent inflation is a negative development for the pound.”


Investment banks remain reluctant to forecast GBP/USD above 1.40.

The headline UK inflation increased to 3.8% from 3.6%, above consensus forecasts of 3.7% and the highest reading since January 2024.

The core rate also increased to 3.8% and compared with expectations of no change at 3.7%.

The goods inflation rate increased to 2.7% from 2.4% while the services-sector rate increased to 5.0% from 4.7%.

Inflation was pushed higher by a jump in airfares, but food inflation increased for the fourth successive month to 4.9%.

The outlook for interest rates will be one key element.

CBI principal economist Martin Sartorius commented; "While inflation is projected to ease next year, the risk of second-round effects means that the MPC will not race to loosen policy in the near term.”


ING considers that the overall picture is less alarming; “We calculate the Bank’s preferred measure of services inflation to be essentially flat in annual terms. And at 4.2%, this measure is a fair bit below overall services inflation.”

The bank added; “That all leads us to think a November rate cut is still more likely than not, though it’s not a particularly high conviction call right now given the very evident division on the rate-setting committee.”

According to MUFG; “the BoE will be concerned higher inflation including the recent pick-up in food inflation will feed through to inflation expectations adding to persistence risks.”

Pantheon Macroeconomics senior UK economist Elliott Jordan-Doak was more strident in his view; “The big picture remains that inflation is set to stay miles above target for the foreseeable future; we expect headline inflation to remain above 3% until April 2026, forcing the MPC to stay on hold for the rest of this year at least.”

Minutes from July’s Federal Reserve meeting will be released later Wednesday.

Markets are pricing in around an 83% chance that rates will be cut in September.

Traders will be cautious in holding short dollar positions given the risk that Fed rhetoric will trigger renewed doubts over the possibility of a September move.

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TAGS: Pound Dollar Forecasts