Pound Sterling to Dollar Forecast: GBP Weakens amid Budget Jitters and Fed Shock

Modified: Thursday, 30 October 2025 09:31 BST - Written by Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: GBP Weakens amid Budget Jitters and Fed Shock

The Pound to Dollar exchange rate (GBP/USD) slumped to a three-month low on Wednesday as renewed fiscal uncertainty weighed heavily on Sterling while the Dollar rebounded in the wake of the Federal Reserve’s latest policy announcement.

At the time of writing, GBP/USD was trading around $1.31985, essentially unchanged on Thursday's open.

The Federal Reserve cut interest rates by 25 basis points as expected, but the accompanying press conference surprised markets with a notably hawkish tone.

Dollar Rallies as Fed Pushes Back on Aggressive Rate Cut Bets

The US Dollar (USD) extended its recovery late Wednesday after the Federal Reserve delivered a 25-basis-point rate cut but signalled that further easing is far from guaranteed.

According to ING, “The dollar is broadly, albeit modestly, stronger after last night's FOMC statement and press conference. The statement was largely as expected, but the press conference turned into a kind of ‘rate protest’ from the Federal Reserve.”

Chair Jerome Powell pushed back against market expectations for a December rate cut, telling reporters it was not a foregone conclusion.

As a result, traders quickly trimmed bets on another move, reducing the implied probability of a cut next month from 100% to around 70%.

ING noted that investors were “learning that the policy rate was not on a glide path to the 3.00/3.25% area,” prompting a flattening in the US yield curve and renewed Dollar buying across the board.

Pound (GBP) Slips as BoE Seen Taking the Strain

The Pound (GBP) remained under pressure through Wednesday’s European session, undermined by ongoing UK fiscal concerns ahead of Chancellor Rachel Reeves’s autumn budget and expectations of earlier Bank of England (BoE) rate cuts.

ING suggested that the recent Sterling weakness is best understood through the lens of monetary policy rather than politics:

“We see the sterling move much more from the Bank of England perspective. Here, investors expect Chancellor Reeves to hold the line on her fiscal rules and perhaps deliver greater fiscal tightening in a move to rebuild budget headroom. This means that the BoE will have to take the strain by lowering interest rates earlier.”

Markets have repriced BoE expectations significantly, with swap rates now pointing to a terminal rate near 3.25% by next summer.

ING cautioned, however, that the sell-off may have run its course for now:

“That repricing might have come far enough – meaning that it is a little dangerous to chase sterling through big support in GBP/USD at 1.3140/50.”

The bank also noted that a slightly hawkish tone from next week’s BoE meeting could help Sterling “reverse some of its recent losses.”

GBP/USD Forecasts: Dollar to Stay Firm, BoE in Focus

Looking ahead, the Pound to US Dollar exchange rate may struggle to recover in the short term as markets digest the Fed’s tougher stance and brace for next week’s BoE meeting.

Unless UK budget rhetoric softens or the BoE signals caution about cutting too soon, GBP/USD could stay on the defensive, with technical support seen near 1.3140.

Further out, any signs of improving global risk sentiment or progress in US-China trade relations could offer limited relief for Sterling.

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TAGS: Pound Dollar Forecasts