Pound to Dollar Rate Pushes Higher, Year-End Forecast 1.34

Modified: Friday, 19 December 2025 09:16 BST - Written by David Woodsmith

STORY LINK Pound to Dollar Rate Pushes Higher, Year-End Forecast 1.34

The British Pound / Dollar exchange rate (GBP/USD) rallied toward 1.3430 after the Bank of England delivered a less dovish-than-feared rate cut and softer US inflation weighed on the dollar.

A narrow 5–4 BoE vote reduced expectations of aggressive easing next year, helping underpin Sterling.

Attention now turns to whether the pair can break resistance near 1.3450.

GBP/USD Forecasts: Near 2-Month Highs

The Pound secured net gains following the Bank of England (BoE) rate cut while the dollar dipped after soft US inflation data.

After trading below 1.3350 ahead of the BoE move, the Pound to Dollar (GBP/USD) exchange rate rallied strongly to 1.3430.

Scotiabank is still uneasy over the GBP/USD outlook, but added; “Regaining 1.34+ would be a positive; a push above 1.3450 would be outright bullish.”

Any move above 1.3455 would represent a 2-month high.

ING has a year-end GBP/USD forecast of 1.34.

There was no surprise in the BoE policy decision with a 25 basis-point cut to 3.75%.

There was a 5-4 vote for the decision as Mann, Greene, Lombardelli and Pill voted against.

The key vote was from Governor Bailey who switched sides and voted for a cut at this meeting.

Markets had considered the possibility that there would be a larger vote in favour of a cut and there were also no dissents in favour of a larger cut.

In this context, the narrative was slightly more hawkish than expected.

Following the decision, markets priced in just under two rate cuts in 2026 compared with the possibility of three moves next year ahead of the decision which helped underpin the Pound.

According to ING; “It's a close call whether the Bank cuts again in February or March. But we think the UK will soon look like less of an inflation outlier, and we're expecting two cuts in the first half of 2026.”

SocGen Head of Corporate Research Kenneth Broux, expects the doves will remain in control next year; “on balance, it increases the likelihood that we'll get another rate cut earlier in early 2026. So for me, it's more of a dovish read. It's certainly not a hawkish read."

US consumer prices data for October and November was weaker than expected. The headline inflation rate dipped to 2.7% for November from 3.0% and below expectations of 3.1%.

The core rate also retreated to 2.6% from 3.0%.

Lower inflation will increase political pressure for rate cuts and potentially influence the committee but markets at this stage are still pricing in less than a 30% chance of a further cut in January.

MUFG commented; “A slower pace of Fed cuts at the start of next year would help to provide more support for the US dollar at a time when the US economy is expected to strengthen driven by a bounce back in activity following the record US government shutdown in Q4 and the boost to growth from stimulus kicking in from President Trump’s One Big Beautiful Bill.”

Nevertheless, it added; “However, we still expect the Fed to deliver multiple rate cuts next year as they continue to move the policy rate further into neutral territory encouraging a weaker US dollar.”

Scotiabank noted dovish comments from Fed Governor Waller who could still be a candidate for the next Fed Chair and added; “Yesterday’s remarks may lift his prospects a little further but will also support concerns that whoever takes over from Powell may be inclined to allow the US economy to run hot.”

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TAGS: Pound Dollar Forecasts