Pound Sterling to Dollar Rate Hits 1.247 as UK Government Talks up Economy

January 27, 2025 - Written by David Woodsmith

STORY LINK Pound Sterling to Dollar Rate Hits 1.247 as UK Government Talks up Economy

The Pound to Dollar exchange rate (GBP/USD) hit 20-day highs just above 1.2520 before settling just above 1.2500.

The government’s shift in stance to talk up the economy and put renewed focus on the growth outlook had some impact in supporting Pound sentiment, although there are still important reservations over the near-term outlook.

COT data, released by the CFTC also recorded a net short position in speculative Pound positions, the first short position since May 2024.

This suggests the potential for short covering if the UK economic news is more positive.

According to Scotiabank. The GBP/USD outlook is bullish with the third leg of a bullish morning star candle pattern on the weekly chart.

It added; “Solid gains again today so far, at least, support the more positive technical outlook and the prospect of a retracement towards the 1.26/1.27 range.”

In contrast, ING and MUFG both expect GBP/USD gains will stall below 1.2600.

The dollar jumped overnight due to the US-Colombia spat over the return of illegal immigrants.

President Trump threatened to impose 25% tariffs on Colombian exports to the US after the Colombian government refused to allow flights to land.

The dollar lost ground after Colombia backed down and the dollar then lost further ground as US yields dipped lower.

US equities came under pressure after Chinese company DeepSeek stated that it could produce a low-cost, low-power AI system.

There were concerns that this would pose a threat to US tech dominance with the Nasdaq index sliding 3%.

The Pound to Euro exchange rate (GBP/EUR) consolidated just below the 1.1900 level.

Domestically, research firm Incomes Data Research (IDR) found that 69% of employers are likely to slow wage growth, with over half "extremely likely" to do so. One-third may cut jobs, while others will absorb costs through lower profits.

There are very strong expectations that the Bank of England will cut interest rates next week, although the medium-term outlook remains extremely uncertain.

Within Europe, the German IFO index improved to 85.1 for January from 84.7 previously and marginally above consensus forecasts of 84.9.

There was a net improvement in current conditions, but the expectations component declined marginally, limiting Euro support.

Markets expect that the ECB will announce a further 25 basis-point interest rate cut this week, taking to deposit rate to 2.75%.

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TAGS: Pound Dollar Forecasts