Pound to Dollar FX Predictions: GBP/USD to Slide to 1.20 say Analysts

February 9, 2025 - Written by Frank Davies

STORY LINK Pound to Dollar FX Predictions: GBP/USD to Slide to 1.20 say Analysts

Foreign exchange analysts at MUFG expect that trade tensions and US pressures will trigger further dollar gains in the short term with the Pound to Dollar (GBP/USD) exchange rate sliding below 1.20.

It does, however, expect a strong recovery to 1.30 at the end of 2025.

Danske Bank has a 12-month GBP/USD forecast of 1.22.

GBP/USD slumped to 1.2250 on the threat of US tariffs before rebounding to 1.2500 and trading near 1.2400 at the end of the week in very choppy trading conditions.

Volatility will inevitably remain elevated in the short term.

The Pound was jolted early in the week by President Trump’s decision to impose 25% tariffs on imports from Canada and Mexico, but there was a quick reversal as tariffs were then delayed for at least a month.

UBS commented; “We believe tariffs risks are here to stay and could resurface at any time. Trump’s focus is likely to turn to Europe next.”

The bank added; “Even though the UK will not be Trump’s main target in a trade war, we see the recent recovery in GBPUSD as overdone and expect a setback in the coming weeks.”

According to Westpac; “A controlled rise in the US term premium will offer additional support for the currency, particularly if, as we expect, inflation remains benign elsewhere.”

MUFG expects near-term dollar support; “We continue to expect the dollar to strengthen further over the coming months. An aggressive approach to trade tariff policies seems likely and tariff actions will help strengthen the dollar before we see weaker economic growth allowing more Fed easing that leads to some reversal of US dollar strength in H2 2025.”

MUFG notes that US tariff policies are likely to have a negative impact on the US economy.

It commented; “We believe this points to an increased chance of our view of more rate cuts coming in H2 materialising with a risk the Fed cuts more than what’s currently priced.”

Bank of America also sees a year of two halves; “We continue to see USD strength in Q1, on tariff risks and the market eventually pricing the end of the Fed easing cycle.”

It added; “but we remain bearish USD by year-end, expecting the US to avoid inflationary policies. Recent AI developments challenge the US exceptionalism and pose further USD risks.”

Westpac commented; “In our view however, this strength in the US dollar and inflation will inevitably come at the cost of weaker growth for the US, seeing the currency retreat.”

Domestically, the Bank of England cut interest rates by 25 basis points to 4.50% at the latest policy meeting. The headline decision was in line with strong consensus forecasts, but there was a surprise in the vote split.

There was a 7-2 vote for the decision with Dhingra and Mann backing a larger 50 basis-point rate cut. The U-turn from Mann was particularly surprising as she backed the need for policy activism.

The BoE statement overall continued to back the case for gradual and cautious cuts in interest rates.

Pound sentiment remains mixed within investment banks.

HSBC commented; “Risks remain high that dovish voices within the MPC and markets’ expectations of rate cuts this year grow as more data gets released. Our outlook for the GBP remains unchanged as we continue to expect the GBP to weaken.”

Credit Agricole is more positive; “The GBP continues to look undervalued and oversold in our view and could consolidate close to recent lows in the absence of any significant UK data disappointments or evidence that UK sovereign credit risks are on the rise once again.”

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TAGS: Currency Predictions Pound Dollar Forecasts