Pound Sterling to Dollar Forecast: GBP and USD on Inflation Watch

Modified: Tuesday, 21 October 2025 09:30 BST - Written by David Woodsmith

STORY LINK Pound Sterling to Dollar Forecast: GBP and USD on Inflation Watch

The Pound to Dollar exchange rate (GBP/USD) steadied around 1.3425 after finding support below 1.34, with traders turning their focus to this week’s UK and US inflation reports that could shape central bank policy expectations.

GBP/USD Forecasts: Trades Above 1.3400

The British Pound Sterling found support below 1.3400 last week and close to this level on Monday and settled around 1.3425 after the New York open.

Equity markets made net gains on Monday which provided an element of Pound support with Sterling remaining sensitive to global financial stresses.

According to Scotiabank, market sentiment towards the Pound remains negative, but with a possible bounce; “Risk reversals remain deeply negative (pricing a premium for puts) but appear to be in the early stages of a recovery.

It added; “We look to a near-term range bound between 1.3350 and 1.3450.”

Wall Street futures are trading higher with some relief that there have been no further negative developments in the banking sector.

BBH commented; "Meanwhile, the growing unease over a string of credit scares in the US is not a systemic concern but worth watching.”

There are still very important underlying cross-current in markets and Scotiabank considers that range trading may continue for now.

It did, however, add; “net losses for the index overall last week were enough to suggest that the dollar’s recent gains may be stalling and perhaps at risk of rolling over.”

Transatlantic inflation data will be important during the week ahead.

The UK data is due for release on Wednesday with market expectations for an increase in the headline rate to 4.0% from 3.8% with the core rate at 3.7% from 3.6%.

Investment banks will study the data to assess whether any shift in Bank of England rate expectations is justified.

ING commented; “Our economics team expects Wednesday's UK services inflation to undershoot the BoE's projection with a 4.6% read, which is also below the 4.8% consensus. That can modestly move the needle to the dovish side in the GBP swap curve and weigh on the pound this week.”

The Pound will be vulnerable if a November rate cut appears to be back on the table.

The delayed US consumer prices data is due on Friday. Consensus forecasts are for an increase in the headline rate to 3.1% from 2.9% with a monthly increase in core prices of 0.3% with the annual rate holding at 3.1%.

At this stage, markets remain extremely confident that the Fed will cut interest rates next week and again at the December meeting.

According to ING; “We are aligned with consensus in expecting a 0.3% MoM core read – which should further endorse a 25bp cut by the Fed next week.”

The Fed is now in the pre-meeting blackout period and there should be no comments on monetary policy.

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TAGS: Pound Dollar Forecasts