Pound-to-Dollar Forecast: GBP/USD Higher as Rate Outlooks Diverge

Modified: Tuesday, 23 December 2025 10:16 BST - Written by Tim Boyer

STORY LINK Pound-to-Dollar Forecast: GBP/USD Higher as Rate Outlooks Diverge

The Pound to Dollar exchange rate (GBP/USD) edged higher as a softer US currency offset lingering concerns over the UK growth outlook.

Markets are increasingly focused on Fed policy and political pressure for looser monetary conditions in the US.

Any further gains in GBP/USD are likely to depend on continued dollar losses rather than renewed confidence in the UK economy.

GBP/USD Forecasts: Close to 2-Month Highs

The Pound to Dollar (GBP/USD) exchange rate has secured net gains to around 1.3440 on Monday with pair within touching distance of 2-month highs just above 1.3450.

The Pound has secured a limited net gain in global markets while there was a generally soft dollar.

The main focus was a fresh surge in precious metals prices with gold and silver both surging to fresh record highs.

US equity markets held firm, although the FTSE 100 index posted a decline of just over 0.5%.

There is the risk of choppy trading in the very short term as trading volumes dip ahead of the Christmas holiday period.

Federal Reserve policy and personnel will remain a key element over the next few months.

At this stage, markets are pricing in close to a 20% chance of a further cut in January with a round a 50% chance of a cut by March.

Danske Bank commented; “We expect the Fed to pause in January and deliver two additional 25bp cuts in 2026, in March and June.”

The policy outlook is complicated by the fact that a new Fed Chair will be nominated while the Administration is continuing to lobby for faster and further rate cuts.

According to MUFG; “Whether Hassett, Waller, or Warsh is chosen, the likelihood is that the new Chair will be more aligned with Trump’s views and will push more forcefully for fundamental change at the Fed that will inevitably shape investor expectations that the Fed will align more toward policies to fuel growth over price stability rather than the current symmetric policy approach.

It added; “This would give momentum to the US yield curve steepening which tends to coincide with a weaker dollar.”

Markets will also be monitoring any developments surrounding the Supreme Court with two crucial cases surrounding the dismissal of Fed Governor Cook and Trump’s reciprocal tariffs.

Domestically, the final GDP data for the third quarter confirmed GDP growth of 0.1%, although there was a slight downward revision to 0.1% for the second quarter from the previous estimate of 0.2%.

The year-on-year growth rate was unchanged at 1.3% due to a small upward revision to 2024 data.

AJ Bell head of financial analysis Danni Hewson remains uneasy over the outlook; “With the Bank of England expecting growth to come to a standstill in the last few months of the year, thanks in part to the impact of the Budget on overall confidence, it’s clear there are huge challenges to overcome if the UK’s growth story is going to become more compelling."

Elsewhere, the current account deficit was estimated at £12.1bn for the third quarter of 2025 from a revised £21.2bn the previous quarter.

Danske Bank is still concerned over balance of payments risks; “The UK runs a large current-account deficit, which makes GBP vulnerable when capital inflows fade.”

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TAGS: Pound Dollar Forecasts