Pound to Dollar Price Forecast: GBP Near 1.34 as Markets Bet on BoE Path

Modified: Monday, 22 December 2025 06:01 BST - Written by Frank Davies

STORY LINK Pound to Dollar Price Forecast: GBP Near 1.34 as Markets Bet on BoE Path

The Pound to Dollar exchange rate (GBP/USD) settled just below 1.34 after failing to hold two-month highs, with markets now focused on how the Bank of England’s easing cycle unfolds.

A narrow 5–4 vote for last week’s rate cut has left uncertainty over the pace of further moves in 2026.

Direction will hinge on whether BoE caution or renewed dollar weakness proves the dominant force.

GBP/USD Forecasts: Betting on the BoE

Nordea forecasts that the Pound to Dollar (GBP/USD) exchange rate will strengthen to 1.41 by the end of 2026 as the dollar loses ground.

CIBC, however, expects GBP/USD will be held to 1.34 in 12 months from a 1.36 peak as the US currency secures a limited second-half recovery.

GBP/USD settled just below 1.34 this week after failing to hold 2-month highs just above 1.3450.

Monetary policy will be a crucial element throughout the next few months.

The Bank of England (BoE) cut interest rates by 25 basis points to 3.75% at the latest policy meeting, in line with strong consensus forecasts.

There was a 5-4 vote for the move with Governor Bailey switching sides from the November vote and the BoE expects further gradual cuts.

ING commented; “today’s news is helping GBP/USD towards our 2025 year-end target of 1.34, and we are mildly positive here in 2026, looking for 1.36 as the weaker dollar and stronger euro trend start to dominate.”

HSBC expects overall Pound losses with GBP/USD dependent on a US retreat to make gains; “With further rate cuts expected, we think GBP will weaken modestly against G10 currencies in 2026 that have already completed monetary easing cycles or are in the frame to start tightening.”

Yael Selfin, chief economist at KPMG, expects it will be difficult to reach a consensus on rates next year. She expects only two interest rate cuts in 2026, taking rates down to 3.25%.

Federal Reserve policy will also be a key element.

Nordea notes potential threats to US Fed independence; “These institutional risks on the horizon will be key for the dollar’s performance in the coming quarters. Importantly, risks do not need to become a reality to hurt the dollar. The mere prospect of political influence over the Fed can be enough to erode confidence.”

It added; “If markets begin to doubt the Fed’s independence or anticipate more aggressive easing under a reshaped committee, the dollar could face renewed periods of selling as investors demand a higher risk premium to hold the currency.”

CIBC is wary over UK fundamentals; “Uncertainty over the UK budget has also stymied investment in recent quarters with the UK economic surprise Index recently plummeting to levels not seen since the start of 2025. The Misery Index has risen again, exceeding levels seen at the start of 2024.”

The bank does, however, see scope for improvement; “Into the year ahead, we think the big risk is an economy that could see growth outperform a very low base. This could be spurred on by lower interest rates, or a less turbulent political climate relative to this year.

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TAGS: Pound Dollar Forecasts