US Dollar: GBP/USD Hits Best Exchange Rate in Four Months

March 20, 2025 - Written by David Woodsmith

STORY LINK US Dollar: GBP/USD Hits Best Exchange Rate in Four Months

The Federal Reserve held interest rates at 4.50% at the latest policy meeting which was in line with strong market expectations.

Chair Powell emphasised that there is a high degree of uncertainty over the outlook, especially over the impact of tariffs.

Concerns over weaker growth and higher inflation undermined confidence in the US outlook and the dollar lost ground after the release.

The Pound managed to regain some ground on the crosses and the Pound to Dollar (GBP/USD) exchange rate hit a fresh 4-month peak just above the 1.3000 level, although there was again selling interest above .

The Pound to Euro (GBP/EUR) exchange rate rallied to 1.1925.

There was no change to the median projection for the Fed Funds interest rate for 2025, although the central tendency was revised slightly higher.

There were significant changes to the economic forecasts with the 2025 GDP growth estimate revised down to 1.7% from 2.1% previously.

There were, however, upward revision to inflation estimates with the core PCE inflation forecast revised higher to 2.8% from 2.5% previously.

Chair Powell stated that tariffs would have a significant inflation impact. He added that inflation expectations have recently moved higher with tariffs as a driving factor.

Powell also commented that uncertainty surrounding policy changes and the economic effect is high.

As far as policy is concerned, he stated that it is too soon to say whether it will be appropriate to look through the effect of tariff inflation.

He did add that there may be a delay in further inflation progress this year.

The forecast update overall increased speculation that the US economy was vulnerable to stagflation which undermined dollar sentiment.

Goldman Sachs commented; “Revisions to FOMC members projections had a somewhat “stagflationary” feel with forecasts for growth and inflation moving in opposite directions. For the time being the Fed is in wait and see mode, as it monitors whether the recent growth slowdown develops into something more serious.”

The Fed also announced a slowdown in bond sales from April with monthly purchase at $5bn from $25bn which is a net easing of monetary policy.

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TAGS: Pound Dollar Forecasts