GBP/USD Price Forecast: Dollar Softens as Markets Eye Fed and UK CPI

Modified: Tuesday, 16 September 2025 22:30 BST - Written by David Woodsmith

STORY LINK GBP/USD Price Forecast: Dollar Softens as Markets Eye Fed and UK CPI

The Pound US Dollar (GBP/USD) exchange rate firmed on Tuesday following the publication of the latest US retail sales index and the UK’s latest jobs data.

At the time of writing, GBP/USD was trading at approximately $1.3642, up roughly 0.3% from the start of Tuesday’s session.

The US Dollar (USD) weakened on Tuesday, sliding against several major peers despite the release of stronger-than-expected domestic data.

August’s retail sales index held steady at 0.6%, defying forecasts for a slowdown to 0.2%, and briefly offering the ‘Greenback’ some support.

However, with the Federal Reserve’s interest rate decision looming, markets continued to price in dovish expectations.

Expectations of rate cuts overshadowed the upbeat data, leaving USD exchange rates under pressure.

The Pound (GBP) edged higher against most major peers on Tuesday, even as the latest UK labour market report delivered a disappointing set of figures.

Data showed the unemployment rate holding at a four-year high of 4.7% in July, while average earnings growth slipped from 5% to 4.8%, underscoring signs of a cooling jobs market.

However, GBP exchange rates remained supported by firm Bank of England (BoE) expectations.

With investors increasingly confident that the central bank will maintain its hawkish stance through the remainder of the year, the Pound was able to shrug off the downbeat data and advance during the day’s trade.

GBP/USD Exchange Rate Forecast: Fed Interest Rate Decision to Drive Movement

Looking ahead to Wednesday’s European session, the Pound US Dollar (GBP/USD) exchange rate will likely take its cue from two key events, the Federal Reserve’s interest rate decision and the UK’s latest inflation figures.

The Fed is widely expected to trim interest rates by 25 basis points, lowering the benchmark from 4.5% to 4.25%, with such a move likely weakening the US Dollar in mid-week trade.

However, with a portion of the market still pricing in the possibility of a steeper 50 basis point cut, the ‘Greenback’ could come under heavier selling pressure if policymakers opt for a larger adjustment.

Any dovish signals in the Fed’s accompanying guidance would only amplify USD losses.

Meanwhile, Sterling’s focus will turn to the publication of the UK’s consumer price index (CPI).

Core inflation is forecast to edge lower from 3.8% to 3.6%, yet overall price growth is still expected to remain far above the Bank of England’s 2% target.

If confirmed, the data could reinforce expectations of a persistently hawkish stance from the BoE, helping to keep the Pound firm against its counterparts.

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TAGS: Pound Dollar Forecasts