Pound to Dollar Rate December Forecast: 2025 - a Year of Uncertainty

December 15, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Rate December Forecast: 2025 - a Year of Uncertainty

Currency exchange strategists at ING Bank forecast that the Pound to Dollar exchange rate (GBP/USD) will remain on the defensive during 2025 and trade at 1.24 at year-end.

After initial weakness, MUFG expects a GBP/USD rally to 1.30 at the end of 2025.

The latest GDP data was weaker than expected which triggered fresh doubts over the outlook and Bank of England policy. With a firm dollar during the week, GBP/USD dipped to 10-day lows near 1.2600.

Markets still expect the Bank of England (BoE) will hold rates at the December meeting.

ING expects the tide on BoE interest rates will turn in the first quarter; “We think that softer UK services data will not emerge until February, suggesting GBP/USD may hold onto gains until then. But ING’s house view is for quite aggressive BoE rate cuts in 2025 – taking the policy rate 150bp lower to 3.25%. Hence our view for some modest GBP/USD downside later next year.”

According to JP Morgan; “GBP could see larger cuts diminishing relative yield support.

The latest US inflation data was in line with expectations and markets are extremely confident that the Fed will again cut interest rates at the December meeting.

The overall data over the last three months, however, allied with expectations of policies under a Trump Administration, have triggered fresh doubts whether there will be further early cuts early next year.

According to MUFG; “We see it as most likely that the FOMC will drop one of the cuts signalled for 2025 in the updated dots profile.”

It expects that the Fed will decide against a further rate cut in January.

ING expects further short-term gains; “Despite seasonal trends for a weaker dollar, the dollar is actually holding onto gains quite well. It is hard to see this state of affairs changing before Trump’s January inauguration.”

Most investment banks are bullish on the dollar.

According to Goldman Sachs; “We expect the Dollar to be ‘stronger for longer’ in 2025, despite incorporating more Fed rate cuts than the market is pricing into our baseline outlook. While G10 FX has recently moved closely with rate differentials, we expect that tariff risks and divergent growth prospects will eventually allow the Dollar to strengthen beyond this relationship.”

JP Morgan is also bullish; “The baseline is for USD to strengthen to new highs on amplified US exceptionalism, still-high rates, stronger productivity and a growing innovation gap.”

SocGen expects capital flows will trigger high volatility; “The world’s savings continue to pour into US assets and the dollar, drawn like moths to the bright light of stronger growth, bigger profits, and higher yields. These flows finance investment, fund the budget, overwhelm the current account deficit, and are keeping the dollar at its highest level, in real terms, since the mid-1980s.”

The bank added; “With nothing visible on the horizon to turn the underlying trend lower, the dollar will either bump up against a hypothetical ceiling or break through to even higher levels (and then, like Icarus, fall back down to Earth).”

MUFG expects global influences will also support the dollar with a focus on a looser Chinese monetary policy; “Further substantial monetary easing is highly likely which will inevitably lift USD/CNY further even before we get Trump tariff details.”

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TAGS: Currency Predictions Pound Dollar Forecasts