GBP/USD Forecast: Pound Sterling Rises Amid US Credit Rating Downgrade

May 19, 2025 - Written by Ben Hughes

STORY LINK GBP/USD Forecast: Pound Sterling Rises Amid US Credit Rating Downgrade

The Pound US Dollar exchange rate (GBP/USD) began the week with strong momentum, surging to a two-week high after the US was stripped of its AAA credit rating by Moody’s.

At the time of writing, GBP/USD was hovering around $1.3385. Up roughly 0.8% from Monday’s opening levels.

The US Dollar faced fresh selling pressure after Moody’s became the third major credit ratings agency to downgrade the United States’ long-standing AAA status, following in the footsteps of S&P in 2011 and Fitch in 2023.

The agency revised the rating down to Aa1, citing mounting concerns over the country’s growing fiscal deficit and surging debt-servicing costs. Moody’s highlighted that unless meaningful fiscal reforms are enacted, the US’s debt trajectory will remain on an unsustainable path.

Investors reacted swiftly to the downgrade, fearing it may undermine confidence in US assets. The move is seen as a warning signal about the long-term credibility of US fiscal policy, especially at a time when borrowing costs remain historically high.

Threats of fresh US fiscal and monetary risks prompted investors to scale back long-USD positions, especially as global risk appetite showed signs of recovery.

In contrast, the Pound was underpinned by optimism surrounding progress in post-Brexit trade talks between the UK and EU.


Reports suggest the UK and EU are close to finalising a new agreement that would reduce checks on agricultural goods crossing the border, in exchange for extended access to UK waters for EU fishing vessels. The deal is expected to be unveiled at a summit in London on Monday.

Investors welcomed the development, interpreting it as a potential turning point in the UK-EU relationship. A reduction in trade frictions could provide much-needed support to UK exporters and help improve the UK’s economic prospects.

Looking ahead, a speech from Bank of England (BoE) Chief Economist Huw Pill on Tuesday may shape near-term GBP movement. If Pill maintains a hawkish tone and pushes back against rate cut expectations, Sterling could build on its current gains.

At the same time, markets will be watching for further updates on UK-EU trade talks. Any confirmation of a breakthrough deal would likely extend support for the Pound.

As for the US Dollar, a lack of key economic data in the early part of the week leaves it vulnerable to sentiment-driven trade. Investors will be particularly attuned to political developments and further commentary on the credit rating downgrade.

Should concerns over US fiscal stability deepen or if additional cracks appear in investor confidence, USD could remain under pressure, potentially pushing GBP/USD higher in the days to come.

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TAGS: Pound Dollar Forecasts