Pound Sterling to Dollar Forecast: GBP Rebounds as Fed Dovish Shift Hurts USD

Modified: Thursday, 16 October 2025 12:00 BST - Written by Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: GBP Rebounds as Fed Dovish Shift Hurts USD

The Pound to Dollar (GBP/USD) exchange rate rebounded from 10-week lows near 1.3250 after dovish Federal Reserve rhetoric pushed the dollar lower.

ING maintains a 12-month target of 1.36, although analysts warn that lingering UK rate-cut risks may cap Sterling upside.

GBP/USD Forecasts: Bounces from 10-Week Lows

The Pound Sterling-US Dollar rate dipped sharply to 10-week lows close to 1.3250 on Tuesday before a recovery to 1.3360 on Wednesday.

The dollar lost ground on relatively dovish rhetoric by Chair Powell and unease surrounding US-China trade wars. The Fed Beige Book will be watched closely later Wednesday.

According to UoB; “The rebound from oversold conditions suggests that instead of continuing to decline, GBP is more likely to trade in a range today, expected to be between 1.3290 and 1.3365.”

Scotiabank commented; “Recent support was clearly observed in the mid-1.32s, and resistance appears limited ahead of 1.34 and the 50-day MA at 1.3476.”

ING expects little headway and has a 12-month GBP/USD target of 1.36.

The outlook for interest rates remains a key element.

In comments on Tuesday, Fed Chair Powell noted that the US jobs market showed “pretty significant downside risks.”

Following the rhetoric, markets were even more confident that the Fed would cut rates at the October meeting.

Scotiabank remains very cautious over dollar fundamentals; “The prospect of easier Fed policy through 2026 constitutes a clear constraint on the USD outlook in broad terms, as does the rising level of Federal government debt. Many large economies are dealing with elevated levels of government debt but few have as weak a profile for the long-term debt trend as the US.”

As far as US data is concerned, the New York empire manufacturing index strengthened to 10.7 for October from –8.7 previously and well above expectations of –2.

UK fiscal and monetary policy will be important elements for the Pound

ING commented; “The UK economy has not been performing as badly as the local press would have us believe, but monetary and fiscal risks do stalk sterling.

After this week’s data, the Pound is still being hampered by increased speculation that the Bank of England will have greater scope to lower interest rates.

According to Scotiabank the Pound is vulnerable; “Fundamentals have deteriorated with a notable pullback in UK-US spreads, narrowing from their recent two year highs in a pullback that warrants attention. The outlook for relative central bank policy is shifting and rates markets are pricing in renewed dovishness at the BoE following Tuesday’s labor market disappointment.”

In comments on Wednesday, there was a clear signal from Chancellor Reeves that taxes would be increased in the November budget.

Saxo Markets UK investor strategist Neil Wilson expects market jitters "I'm not sure how many sellers are left in the short USD trade but I would tend to favour a pre-Budget retreat to the 1.30 support before we maybe see some fiscal tightening that is more than the market is expecting.”

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