GBP USD forecast: as we look ahead to 2025, predicting the exchange rate between the British Pound (GBP) and the US Dollar (USD) involves considering a range of economic, political, and market factors.
The Pound to US Dollar (GBP/USD) exchange rate recently retreated from a one-month high, influenced by a dovish interest rate decision by the Bank of England (BoE). This article provides an in-depth analysis of the recent currency movements and forecasts for the weeks ahead.
As of last week, the GBP/USD exchange rate closed at approximately $1.2430. This marks a modest increase of about 0.3% from the opening levels of the session but reflects a decline of around 0.8% from its peak levels.
At the beginning of last week, the Pound (GBP) outperformed several of its counterparts, notably due to supportive comments from US President Donald Trump regarding a potential trade deal with the UK. In contrast, currencies like the Euro (EUR) faced challenges due to Trump's tariff threats.
However, the GBP found itself adrift midweek when the UK’s service sector growth was revised downward in January’s finalized Services PMI. This lack of positive economic news led to a loss of momentum for the Pound.
In the latter part of the week, the BoE's first interest rate decision of the year exerted downward pressure on the GBP. While a 25 basis point rate cut was anticipated, the bank's overall outlook surprised markets. The BoE halved its growth forecast for 2025 and revealed a dovish split within its Monetary Policy Committee (MPC), with some members advocating for even more significant policy easing.
The US Dollar (USD) experienced considerable volatility early last week, primarily influenced by President Trump’s fluctuating stance on tariffs related to Mexico and Canada. Initially, the USD surged when Trump announced tariffs but subsequently retraced those gains after he agreed to delay their implementation.
As the week progressed, easing trade war fears and a sharper-than-expected slowdown in January's ISM Services PMI weighed on the USD. However, a shift in market sentiment toward the end of the week helped the ‘Greenback’ recover some losses as investors turned to the safe-haven currency.
The publication of the US non-farm payroll report added further volatility. Although payroll figures fell short of expectations in January, a decrease in unemployment provided some support for the USD.
As we look to the upcoming week, several key indicators are expected to influence the GBP/USD exchange rate, particularly the release of the US Consumer Price Index (CPI). A stronger-than-expected inflation reading could undermine expectations for imminent rate cuts by the Federal Reserve, potentially strengthening the USD.
US Consumer Price Index: A robust inflation reading could bolster the USD, while weaker data may provide support for the GBP.
UK GDP Figures: Investors will focus on the latest GDP data from the UK. If growth stagnates in the fourth quarter of 2024, concerns over stagflation could dampen sentiment for the Pound.
In summary, the GBP/USD exchange rate has shown volatility influenced by economic indicators and geopolitical events. As we look ahead, the upcoming CPI data from the US and GDP figures from the UK will be critical in shaping market sentiment and determining the future trajectory of the GBP/USD exchange rate.
Final Thoughts
Investors should remain vigilant and keep abreast of economic developments in both the UK and the US. The interplay of interest rate decisions, inflation trends, and broader economic health will be pivotal in determining the strength of the Pound against the US Dollar in the coming weeks.
Risk Warning: this article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform.When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.
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