Pound to Dollar Forecast: GBP Regains 1.35 vs USD on Fed Cut Expectations

Modified: Wednesday, 24 September 2025 10:15 BST - Written by Frank Davies

STORY LINK Pound to Dollar Forecast: GBP Regains 1.35 vs USD on Fed Cut Expectations

The British Pound (GBP) moved higher against the US Dollar (USD) on Tuesday, with cable's exchange rate regaining the 1.3500 level after briefly dipping lower on weak UK data.

Expectations of further Federal Reserve rate cuts kept the dollar on the defensive, while firmer equity markets also lent the Pound support. UK services PMI weakness limited upside, however, with investors cautious over whether higher yields will bolster sterling or reignite fiscal concerns.

GBP/USD Forecasts: Regains 1.3500

The Pound to Dollar (GBP/USD) exchange rate dipped below 1.3500 after disappointing UK data on Tuesday, but regained losses to trade around 1.3520 after the US open.

Expectations of further Federal Reserve rate cuts this year were key in underpinning the Pound as the dollar overall had a softer tone in global markets while the Pound drew support from net gains in equities.

A crucial factor will be whether relatively high yields support the Pound or lead to increased fiscal fears.

According to UoB; “GBP may edge higher today, but any rise is likely part of a higher range of 1.3480/1.3545. A sustained break above 1.3545 appears unlikely.”

Scotiabank also expects further near-term consolidation; “We await a break of the multi-month range centred around 1.35 and look to a near-term range bound between 1.3450 and 1.3550.”

Crucial long-term resistance remains near 1.3800.

UK business confidence data was weaker than expected with a significant slowdown in the services-sector index to a 2-month low of 51.9 from 54.2 previously which triggered fresh doubts surrounding the UK growth outlook.

There were, however, relatively hawkish comments from BoE chief economist Pill who defended his call for bond sales to be maintained at the current pace while also noting that inflation had been more stubborn than expected.

The US PMI manufacturing index retreated to a 2-month low of 52.0 for September from 53.0 previously and fractionally below consensus forecasts while the services-sector index also declined marginally to a 3-month low of 53.9 from 54.5.

There was further strong upward pressure on costs with the second-highest increase in services-sector costs for 27 months, but strong competition and weak demand curbed price increases.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented on mixed data; “While growth expectations across both manufacturing and services also continue to be dogged by concerns over the political environment, and especially tariffs, September encouragingly saw business sentiment improve in part due to the anticipated beneficial impact of lower interest rates.”

In this context, Fed rhetoric will continue to be monitored closely. Fed Governor Bowman stated that she was worried that the Fed was behind the curve on labour-market weakness and the central bank may need to adjust faster if risks materialise.

Overall, she expects a further two rate cuts this year.

Scotiabank commented; “Markets have repriced Fed easing risks away from the extremes seen running into last week’s FOMC but continue to reflect the expectation that the Fed still has a lot more easing ahead, with swaps and futures implying the Fed Funds target rate falling to 3.00% over the next 12 months or so.”

It added; “While markets are relatively subdued, DXY price action looks a little soft.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts