Pound to Dollar Rate YEAR REVIEW: GBP/USD Gains 8% in 2025

Modified: Wednesday, 31 December 2025 07:01 BST - Written by Tim Boyer

STORY LINK Pound to Dollar Rate YEAR REVIEW: GBP/USD Gains 8% in 2025

The Pound to US Dollar exchange rate (GBP/USD) posted robust gains to 1.38 over the first half of the year, the strongest reading for over three years, as the dollar came under notable pressure.

The Pound was buffeted by fiscal concerns at times amid bouts of selling in UK bonds, but a 2022-style meltdown was avoided and there was a covering of short positions late in the year.

GBP/USD was unable to make further headway over the second half and settled close to 1.35 as the dollar stabilised in global markets.

Consensus forecasts are for GBP/USD to make only a marginal gain to 1.36 by the end of 2026 with the dollar and Pound both fragile in global markets.

Nordea expects the dollar will lose ground in 2026 with further fundamental vulnerability; “We expect the dollar to weaken next year, when growth differentials and political uncertainty turns against the dollar. We are particularly concerned about the Trump Administration’s focus on influencing the Fed.”

The dollar overall posted notable losses during the year with the currency index sliding around 9%, the sharpest loss since 2017.

The US currency posted notable losses during the first half of the year with fears that US reciprocal tariffs would damage the economy.

There were also expectations that the extended period of US exceptionalism was coming to a close and that yield support would be eroded.

Federal Reserve policy was a key element during 2025.

The Fed made no changes to rates during the first eight months of the year with the Fed Funds Rate unchanged at 4.50%, but there were three cuts between September-December which brought the rate down to 3.75%.

Although there were only limited rate cuts, markets were wary over the threat of increased political pressure for lower interest rates.

President Trump heavily criticised Chair Powell for not cutting interest rates and openly called for Powell to be replaced.

Following the resignation of Governor Kugler, Trump appointed Miran to the committee and he voted for sharp interest rate cuts.

Importantly, a new Fed Chair will take over in May with expectations that there will be a dovish appointment with the new incumbent looking to cut interest rates at a faster pace.

The Bank of England cut interest rates four times during 2025 with the committee becoming more confident that inflation pressures within the economy were easing.

There were, however, still notable divisions within the committee as the more hawkish members were still concerned over underlying inflation pressures.

At this stage, markets are expecting two further BoE cuts during next year.

The Pound was hampered by persistent fears over fiscal policy with expectations that further tax hikes in the Autumn 2025 budget would undermine growth.

The growth outlook could prove to be a key element for the currency during 2026.

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TAGS: Pound Dollar Forecasts