Pound to Dollar FX Predictions: 2025 GBP/USD Peak Already in?

February 16, 2025 - Written by Frank Davies

STORY LINK Pound to Dollar FX Predictions: 2025 GBP/USD Peak Already in?

During the week, the Pound to Dollar exchange rate (GBP/USD) strengthened to 2025 high at 1.2630 as US yields declined, the dollar stumbled and European currencies made headway.

According to ING; “1.25/26 should be the top of the range this year and we are looking for a move to 1.19/20.”

Bank of America still forecasts that dollar weakness will help GBP/USD advance to 1.38 at the end of the year.

RBC expects that GBP/USD overall will struggle for direction with an end-year forecast of 1.24.

Volatility is likely to remain a key element over the next few months, especially with an on-going debate over US tariffs and trade policy.

Dan Tobon, head of G10 FX at Citi commented; “We're in a place where the dollar is priced for everything positive. It's going to be very choppy from here – a lot of volatility without necessarily going anywhere."

RBC notes major uncertainty surrounding the dollar; it sees two major upside risks for the dollar and two downside risks.

One upside risk is that tariffs turn out to be more aggressive and last longer than expected.

A second threat is that risk appetite slides amid fears over US inflation trends.

On the other hand, it expects the dollar will tend to come under pressure if there is an unexpected US economic weakness and a move by the Federal Reserve to cut interest rates more aggressively.

A sustained period of underperformance by US equities would also undermine the US currency.

US asset-price moves will inevitably be influenced to an important extent by tariffs with the US looking to enforce reciprocal tariffs on global trading partners.

Danske Bank commented; “While tariff headlines remain a notable driver of FX price action, it seems markets increasingly view them as a negotiation tactic, with a fading impact. Our bias remains that Trump will ultimately underdeliver on tariffs, though further announcements are likely in the coming months.”

Despite initial strength, Bank of America expects the dollar will eventually lose out; “we argue that in a scenario of US tariffs against the rest of the world and full retaliation, the USD could weaken as second-round effects take over.”

It added; “Although the US economy is less dependent on trade, it would be more vulnerable than most economies if it is the US against the rest of the world in a trade war.”

Latest UK GDP data was slightly stronger than expected with 0.4% growth for December driving 0.1% growth for the fourth quarter compared with consensus forecasts of a slight decline.

Overall confidence in the outlook, however, remains fragile.

According to HSBC; “Our economics team have revised down their 2025 GDP forecast to 0.9% from 1.4% previously given this weakness in private demand, and an expectation that support from public spending is set to flounder.”

Standard Chartered took a similar view; “given the lack of momentum in H2, as well as our expectation of additional fiscal tightening on the spending front in the coming months, we lower our 2025 growth forecast to 1.0% from 1.3% previously."

It added; “on balance, we would expect a faster pace of rate cuts from the BoE should labour market metrics show a clear deterioration."

According to ING; “The next couple of months could be key for this story if, as we expect, the UK shifts to a tighter fiscal/looser monetary policy setting.”

It added; “Weaker growth and higher debt servicing costs mean that the UK government will probably have to announce real terms spending cuts in March.”

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TAGS: Currency Predictions Pound Dollar Forecasts