2025 Forecast: Pound Sterling to Strengthen Against Dollar, Not the Euro

Modified: Saturday, 23 August 2025 10:06 BST - Written by David Woodsmith

STORY LINK 2025 Forecast: Pound Sterling to Strengthen Against Dollar, Not the Euro

The latest Pound Sterling forecasts point to a split outlook: analysts see the Pound to Dollar (GBP/USD) forecast turning more positive, while the Pound to Euro (GBP/EUR) forecast remains subdued. Markets expect Sterling to push higher against the US Dollar towards 1.39 over the next 12 months, but struggle to break above 1.16 against the Euro.

Consensus suggests a diverging path for Sterling, shaped by resilient UK economic data, stubborn inflation at 3.8%, and an uncertain Bank of England (BoE) policy outlook.

Pound to Dollar Forecast (GBP/USD)

The Pound to Dollar exchange rate failed to re-test the 1.36 level this week, retreating to near 1.34 amid a tentative dollar recovery. Nevertheless, consensus forecasts are for GBP/USD to strengthen to 1.39 on a 12-month view as markets anticipate lower Federal Reserve interest rates.

Not all banks are aligned: Wells Fargo expects GBP/USD will retreat to 1.30 by the end of 2026 on renewed dollar gains, while UBS sees scope for a move back to 1.39 by late 2025, citing “the outlook for lower Federal Reserve rates, White House policy uncertainty, and international investors raising hedge ratios for dollar assets.”

The Federal Reserve remains the key driver. Earlier in the week, markets were convinced that the Fed would cut rates in September, but stronger US data has cast doubt. Fed members remain split, with Cleveland Fed President Hammack stating current conditions “do not justify a rate cut at this stage.”

Markets are now pricing just over a 70% chance of a September cut. A cautious stance from Chair Powell at Jackson Hole could see the Dollar regain ground in the short term, but longer-term expectations still lean towards weakness, underpinning the more positive GBP/USD forecast.

Pound to Euro Forecast (GBP/EUR)

The Pound to Euro exchange rate has consolidated around 1.1570 after failing again to hold above 1.16. Consensus forecasts point to limited losses, with GBP/EUR seen at 1.15 on a 12-month horizon.

Danske Bank is more bearish, forecasting a retreat to 1.1235 within 6-12 months on the back of weak UK fundamentals. It argues that relative growth dynamics are turning against Sterling:
“We increasingly see domestic factors and the relative growth outlook between the UK and the euro area as becoming GBP negatives. This is further amplified by divergence in fiscal policy, with UK fiscal policy set to be tightened in the Autumn.”

Societe Generale also warns that Sterling’s underlying support is fading:
“GBP has decent short-term support, even if its medium-term support is rotting away in the face of a depressing fiscal outlook. Higher taxes are coming and so is slower growth and further GBP weakness.”

SocGen highlights the Euro’s strengthening base, noting that EUR/GBP support has risen steadily from 0.8250 early in the year to 0.86 by July. By the autumn, it expects support to climb to 0.87 — implying GBP/EUR below 1.15.

UK data continues to paint a mixed picture. Manufacturing PMI remains in contraction, while services activity hit a 12-month high. Inflation data came in stronger than expected at 3.8% for both headline and core, raising stagflation concerns.


The Eurozone, meanwhile, reported a 15-month high in its composite output index, supported by gains in both manufacturing and services despite ongoing global trade headwinds.

The Pound Sterling forecast remains finely balanced. Against the Dollar, expectations of Fed easing underpin projections for GBP/USD to strengthen towards 1.39, but short-term risks remain if Powell pushes back on cuts. Against the Euro, Sterling continues to struggle, with GBP/EUR likely capped around 1.15 and downside risks highlighted by Danske and SocGen.

For now, Sterling’s fate will rest on a tug of war between UK fundamentals, BoE caution, and external drivers from Washington and Frankfurt.

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts