Pound to Dollar Forecast: GBP Advances as Fed Dovish Shift Hits USD

Modified: Friday, 17 October 2025 11:15 BST - Written by Frank Davies

STORY LINK Pound to Dollar Forecast: GBP Advances as Fed Dovish Shift Hits USD

The Pound to Dollar exchange rate (GBP/USD) advanced to a one-week high near 1.3440, taking advantage of a broad dollar retreat as traders priced in two Fed rate cuts by the end of 2025.

Foreign exchange strategists, however, remain wary of UK economic fragility and limited BoE flexibility.

GBP/USD Forecasts: Rebounds to 1-Week Highs

Pound Sterling secured a net advance on Tuesday, able to take advantage of a dollar setback to make net gains to a 1-week high of 1.3440 in Europe on Thursday.

According to UoB, further gains are likely to be limited; “The major resistance at 1.3475 is unlikely to come into view. To keep the mild momentum going, GBP must hold above 1.3360.”

The Pound also still has work to do to regain a firmer trend.

ING, for example, expects GBP/USD will be capped below 1.40 throughout the next 12 months.

Markets remain very confident that the Fed will cut interest rates this month and are now pricing in close to a 95% chance of two rate cuts by the end of 2025.

The US 10-year yield has dipped to near 4.00% with the prospect for lower interest rates undermining the dollar.

ABN Amro, however, is not convinced over the merits of further rate cuts; "We think policy is currently not as restrictive as the FOMC appears to think, and we think the upside risks to inflation outweigh the downside risks to the labour market. This frontloaded easing path increases the probability of the upside inflation risks materializing.”

Markets are also fretting over trade developments as US-China tensions continue to intensify.

Overnight, President Trump stated that the US is in a trade war with China.

ING commented; “The question for financial markets is whether China's proposed export controls on rare earths are merely part of a bargaining ploy to achieve greater concessions from the US. Or really whether it is a threat which would stick and greatly disrupt global supply chains.”

The aggressive rhetoric has increased concerns over a further hit to the US economy and hurt the dollar.

It is, however, unlikely that the Pound would find strong support if global risk appetite deteriorates sharply.

As far as the UK economy is concerned, GDP increased 0.1% for August, in line with expectations, but the July figure was revised down to –0.1% compared with the flash figure of no change.

Capital Economics deputy chief UK economist Ruth Gregory maintains a generally downbeat stance; “The meagre rise in real GDP in August suggests growth is still being hampered by high interest rates, higher taxes and soft overseas activity. With business sentiment on the floor and employment still falling, we doubt growth will improve much in Q4.”

The implications for interest rates and taxes will be important.

Gregory does not expect a shift within the Bank of England; “With inflation still high and rising, we doubt the soft GDP news will tempt the Bank of England to cut interest rates again this year.”

She expects the next rate cut will be in February.

The UK goods trade deficit widened to £21.1bn for August from £20.65bn the previous month. Exports declined £1.1bn on the month with a £0.7bn decline in exports to the US, illustrating the stresses caused by tariffs.

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TAGS: Pound Dollar Forecasts