Pound Sterling to Dollar Forecast: Fed Minutes Next Test for USD Direction

Modified: Saturday, 27 December 2025 07:46 BST - Written by David Woodsmith

STORY LINK Pound Sterling to Dollar Forecast: Fed Minutes Next Test for USD Direction

The Pound to US Dollar exchange rate (GBP/USD) has remained firm into the post-Christmas period, with the pair continuing to trade above the $1.35 handle as markets maintain expectations of US interest rate cuts next year.

At the time of writing, the Pound to Dollar exchange rate (GBP/USD) is trading at 1.34994, broadly consolidating recent gains after rallying strongly ahead of Christmas.

The US Dollar (USD) has stayed on the defensive, with investors increasingly confident that the Federal Reserve will move towards easing policy in 2026.

Market pricing continues to point to rate cuts beginning as early as April next year, with around 50 basis points of easing expected over the course of 2026. These expectations have been underpinned by a run of softer US data, including signs that the labour market is cooling alongside easing inflation pressures.

Even when US releases have surprised to the upside — such as the strong third-quarter GDP figures published earlier in the week — they have failed to alter the broader narrative that monetary policy is likely to loosen further next year.

Uncertainty surrounding future Federal Reserve leadership has also weighed on the Dollar. President Donald Trump is widely expected to announce a successor to Jerome Powell in the coming weeks, with White House economic adviser Kevin Hassett currently seen as the frontrunner.

Hassett is viewed as closely aligned with the President’s preference for lower borrowing costs, raising concerns that his appointment could accelerate the pace of policy easing and add further pressure to the US Dollar.

The Pound (GBP), meanwhile, has struggled to find clear direction in thin holiday trading conditions.

With many market participants away over the Christmas period, liquidity has fallen sharply, muting volatility across FX markets and limiting Sterling’s scope for meaningful moves. The absence of major UK economic releases has reinforced the subdued tone, leaving GBP largely driven by broader market sentiment rather than domestic fundamentals.

GBP/USD Forecast: Seasonal Quiet to Cap Volatility?

Looking ahead, trading conditions are expected to remain subdued as markets move deeper into the post-Christmas lull.

However, one potential catalyst remains before year-end. The Federal Reserve is due to publish the minutes from its December policy meeting early next week. If the minutes reinforce the Fed’s recent dovish messaging, selling pressure on the US Dollar could persist into the New Year, helping GBP/USD remain supported near current levels.

Conversely, any hint of greater caution from policymakers could prompt some consolidation after Sterling’s recent advance.

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TAGS: Pound Dollar Forecasts