GBP/USD Price Forecast: Pound Sterling "Bearish" as Rate Expectations Soften

Modified: Wednesday, 22 October 2025 23:15 BST - Written by Frank Davies

STORY LINK GBP/USD Price Forecast: Pound Sterling "Bearish" as Rate Expectations Soften

The Pound US Dollar exchange rate (GBP/USD) slipped on Wednesday after a softer-than-expected UK inflation print fuelled speculation that the Bank of England (BoE) could begin cutting interest rates before the end of the year.

At the time of writing, GBP/USD was trading around $1.3420, down roughly 0.4% from Wednesday’s opening levels.

The Pound (GBP) came under sustained selling pressure during the European session after the Office for National Statistics (ONS) reported that inflation in the UK cooled more than expected in September.

Headline CPI held steady at 3.8%, missing forecasts for a rise to 4%, while core inflation eased from 3.6% to 3.5%, instead of the anticipated uptick to 3.7%.

The weaker data suggested that inflationary pressures in the UK economy are fading faster than the BoE had anticipated, particularly in key areas such as food prices, which fell on the month.

According to ING, the data delivered a dovish signal for policymakers:

“The September UK inflation reading released this morning is sending a dovish signal to the Bank of England and weighing on the pound. Headline inflation remained unchanged at 3.8% (consensus 4.0%), while core slowed down from 4.6% to 3.5% and services CPI stabilised at 4.75% versus expectations of 4.8% and 0.3pp below the BoE’s latest forecast.”

The bank added that the main surprise came from food prices — a major concern for the BoE of late — which are now around 0.5 percentage points below the Bank’s August forecasts.

This softer inflation outlook prompted traders to ramp up bets on a potential December rate cut, leaving the Pound on the defensive throughout the day.

The US Dollar (USD), meanwhile, held steady in relatively thin trading conditions amid a quiet domestic calendar.

Easing trade tensions between the US and China provided some modest support for the ‘Greenback’, after President Donald Trump described progress on trade negotiations as “fantastic” and signalled plans to meet Chinese leader Xi Jinping next week.

The comments helped stabilise risk sentiment, though they failed to trigger any sustained directional move in USD exchange rates.

GBP/USD Forecast: UK Business Confidence to Drive Sterling?

Looking ahead, movement in the Pound US Dollar exchange rate on Thursday may hinge on the Confederation of British Industry’s (CBI) business optimism index.

Economists expect sentiment among UK firms to have softened in the final quarter of the year amid concerns about the economic outlook and tightening fiscal conditions ahead of Chancellor Rachel Reeves’s autumn budget.

A weaker-than-expected print could see the Pound remain under pressure, while any upside surprise might help Sterling stabilise after its mid-week losses.

In the US, the government shutdown continues to suppress key data releases, meaning market sentiment will likely drive Dollar direction.

If risk appetite fades, USD could benefit from safe-haven demand, whereas a more upbeat tone across global markets may see the ‘Greenback’ give back some recent gains.

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TAGS: Pound Dollar Forecasts