GBP/USD Forecast: Pound GDP Boost Fades, Dollar Eyes Bonds

May 15, 2025 - Written by Tim Boyer

STORY LINK GBP/USD Forecast: Pound GDP Boost Fades, Dollar Eyes Bonds

The Pound Sterling initially gained against the Euro and U.S. Dollar following the latest GDP data, but GBP was unable to make further headway with concerns that the data overstated the underlying performance.

Equity markets were also weaker which limited potential support, but the US Dollar remained fragile.

The Pound to Dollar exchange rate (GBP/USD) failed to hold 1.3300 and retreated to 1.3285 with evidence of buying on dips.

The dollar overall has struggled to hold gains amid fresh concerns that the combination of huge supply of US bonds and the risk of fading global demand for Treasuries will trigger higher yields and a weaker dollar.

ING is positive on the short-term GBP/USD outlook; “With the dollar looking a bit vulnerable, GBP/USD looks biased to the 1.3360/3400 area short term.”

UK GDP grew 0.7% for the first quarter of the year after a 0.1% gain for the final three months of 2024 and compared with expectations of 0.6% growth.

According to the provisional data, the UK first-quarter performance was the strongest within the G7 area.


Budget concerns will ease slightly, although there are still important underlying stresses in meeting the government’s fiscal rules.

ING noted potential seasonal distortions in the data, but considers the outlook is broadly encouraging.

The bank added; “the UK outlook does look 'ok', even if first-quarter GDP probably heavily overstates the underlying pace of growth. Uncertainty surrounding global trade is a headwind, though the direct impact of tariffs on the UK looks negligible. Remember too that government spending is rising significantly this year and that will be a firm tailwind.”

Exports were also boosted by shipments ahead of US tariffs.

According to Paul Dales, chief UK economist at Capital Economics; “Overall, the main reason why GDP was stronger than everyone expected appears to be because US and UK tax changes meant that more activity was pulled forward into Q1 from Q2 than everyone expected, rather than because the UK economy is fundamentally stronger.”

US developments are likely to be crucial later in the session.

Retail sales data will be released and there are also two important regional surveys with the New York and Philadelphia Fed data. There were sharp declines for April and the May data will be important for wider confidence in the US outlook.


US bond yields have also moved higher with markets fretting over the implications of huge budget deficits and the Republican tax bill.

The 10-year yield is above 4.50% with the 30-year yield near 5.00% and close to levels which triggered a U-turn on reciprocal tariffs in April.

Significantly, higher US yields have not supported the dollar.

Rabobank commented, “Perhaps we are about to find out whether it really was rising bond yields that forced the about-face on those reciprocal tariffs, or if Scott Bessent has some other rabbit to pull out of his hat to force long yields lower.”

MUFG noted the risk that bond-market fears would lead to Truss-style difficulties for the dollar.

Looking at the proposed legislation it added; “Much of the cost of this bill is merely to extend the status quo and other aspects could easily be crowded out by yields being higher than otherwise would be. That in our view means this development will not prove positive for the dollar.”

SocGen commented; “I’m sure that President Trump, with his desire to rebuild the global trade framework, is in favour of a less expensive dollar.

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TAGS: Pound Dollar Forecasts