Pound to Dollar Predictions: Expect GBP/USD Selling above 1.2600, say ING

February 20, 2025 - Written by Frank Davies

STORY LINK Pound to Dollar Predictions: Expect GBP/USD Selling above 1.2600, say ING

The Pound has found support below 1.2600 against the US Dollar and settled just above this level on Thursday.

There are very important geo-political stresses as well as trade tensions with the US which will maintain a high degree of uncertainty in FX markets.

The latest UK PMI business confidence data on Friday will be important in determining whether the Pound can be resilient in the face of wider pressures.

ING expects GBP/USD selling above 1.2600.

The Ukraine situation remains in a major state of flux, but there will be strong expectations that Europe will have to increase military spending over the medium term.

ING notes this pressure which will also put upward pressure on bond yields.

There will also be concerns over a spill-over into UK bonds, especially given that the UK government will is under pressure to increase defence spending.

The UK 10-year yield has increased to a 3-week high above 4.60% and higher yields would create further stresses for the UK economy.

ING commented, “If gilt yields are pressing their January highs at the time of the March review, this means either: a) the Chancellor will need to deliver deeper spending cuts or b) UK asset markets get hit should her plans not look credible.”

It added, “Neither scenario is a good look for sterling, and that is why we doubt GBP/USD holds any near-term gains over the 1.26 area.”

The latest PMI business confidence data on Friday will be important for Pound sentiment.

Consensus forecasts are for little net change from the previous month with manufacturing in recession and limited growth in services.

Stronger-than-expected data would ease concerns over the UK economy.

Weaker data, however, would increase unease over the outlook and increase pressure for faster Bank of England (BoE) rate cuts.

Weak data would also increase reservations surrounding the UK fiscal outlook.

Evidence on costs and prices within the survey will also be important for wider inflation expectations which will feed through into BoE expectations.

Danske Bank remains positive on the Pound outlook; “We see the bar as high for delivering a cut in March, amplified by today's release and expect the next cut in May. We stay bullish on GBP FX and expect a more gradual BoE easing cycle relative to peers to support this view.”

US inflation and interest rate trends will also be a key element.

According to Westpac, "Considerable uncertainty remains over the path of inflation given potential changes to U.S. trade and immigration policy."

At this stage, markets see just under a 50% chance of a cut by June.

Nordea takes a more hawkish stance; “The strong performance of the economy and financial markets also emphasizes that financial conditions and monetary policy are not particularly restrictive.”

It added, “With inflation expectations on the rise and tariffs on the rise, we believe the Fed’s current wait-and-see stance will become permanent.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts