GBP to USD Forecast: Pound Retreats vs Dollar as UK CPI Seals Rate Cut

Published: Thursday, 18 December 2025 09:00 BST - Written by Tim Boyer

STORY LINK GBP to USD Forecast: Pound Retreats vs Dollar as UK CPI Seals Rate Cut

GBP/USD Forecasts: Free Institutional Predictions here

After trading around 1.3420 in Asia on Wednesday and close to 12-week highs, the Pound to Dollar exchange rate (GBP/USD) slumped to lows near 1.3310 before trading around 1.3330.

Any move below 1.3290 would trigger further damage to the outlook.

The dollar secured a net recovery in global markets while the Pound was hurt by weaker than expected UK inflation data.

Assuming the Bank of England cuts interest rates on Thursday, guidance from the bank as well as the wider dollar tone will be crucial for GBP/USD moves with another session of sharp moves inevitable.

The headline UK inflation rate declined more than expected to 3.2% from 3.6% and compared with consensus forecasts of 3.5% while the core rate declined to 3.2% from 3.4%.

Food price inflation retreated sharply to 4.2% from 4.9%, although services-sector inflation declined only slightly to 4.4% from 4.5%.

PwC economist Adam Deasy commented; “After keeping rates on hold in November, a few factors point to the Bank being able to cut on Thursday.”

According to ING; “November’s drop in UK inflation is just the latest sign that price pressures are abating and that the Bank of England has more work to do. We expect a rate cut on Thursday and two more next year.”

Markets have now priced in close to a 100% chance of a BoE cut this week and at least two cuts next year.

The dollar managed to secure a limited comeback on Thursday after hitting 10-week lows on Wednesday. Markets are now pricing in just under a 20% chance of a further rate cut in January.

The latest US inflation data is due for release on Thursday, but there will only be annual figures given that the previous report was cancelled.

Thomas Mathews, head of markets for Asia-Pacific at Capital Economics commented; "If CPI comes in as expected later this week then the Fed will definitely not be feeling pressure to ease at the next few meetings. Even March may be a bit too soon to expect a cut."

Underlying Fed policies and personnel will also be key influences with a notable focus on the Fed Chair nomination.

MUFG commented; “The lack of dollar selling could also reflect the fact that Kevin Hassett is no longer the definite pick for Fed Chair position and instead both Kevin Warsh and Christopher Waller are back in the running. Polymarket probabilities now have Hassett, Warsh and Waller closer to each other than before.”

It added; “Still, Hassett is again showing as being the favourite so the recent relief for the dollar may quickly fade.”

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TAGS: Pound Dollar Forecasts