March 9, 2025 – Written by David Woodsmith

STORY LINK Pound to Dollar Weekly Forecast: Target Extended to 1.33-1.34 say Analysts

Foreign exchange strategists at Morgan Stanley have extended their Pound to Dollar exchange rate (GBP/USD) target to $1.33.

Bank of America analysts consider that the GBPUSD break higher this week is potentially very important and could pave the way for a test of 2024 highs above $1.34.

It has been a week of chaotic US drama amid with sharp dollar index losses (DXY) as the Euro surged and GBP/USD hit 4-month highs near 1.2950 before a correction.

ING commented; “This week’s tectonic shifts in the Transatlantic divide come with significant caveats and major unknowns. And it’s these question marks that really matter for what happens next in financial markets.”

The bank no longer expects GBP/USD will slide below 1.20.

According to Morgan Stanley; “The combination of USD-negative forces and improved optimism around EUR as a ‘credible alternative’ to the greenback should propel capital into Europe, benefiting not just EUR but other European currencies as well.”

Ukraine developments remained very important, especially given the European reaction.

On the trade front, President Trump imposed 25% tariffs on Canada and Mexico from February 4th.

Trump then announced that autos would be exempted for one month and this was then extended to all goods covered by the free-trade agreement.

There are still plans to introduce global tariffs at the beginning of April and tariffs on China have been increased.

MUFG commented; “What is clear is that the back-and-forth on trade tariff policy announcements can’t be good for the US economy and it is surely creating an incentive amongst businesses to retrench from decisions around hiring and business investments.”

US data was mixed with the jobs report close to expectations.

Federal government employment, however, declined and sharper falls are expected over the next few months.

Expectations of a first-quarter GDP decline for the first quarter increased recession fears.

Equity markets declined, but it was notable that the dollar failed to gain defensive support.

This failure helped open a wider currency debate.

According to Deutsche Bank’s global head of FX strategy George Saravelos there is an increased risk that the US dollar will lose its reserve currency status; “we are starting to become more open-minded to the prospects of a broader weaker trend unfolding for the dollar. Two pillars of America’s role in the world are being fundamentally challenged: the US’s security backstop for Europe and the respect of rules-based free trade.”

It added; “We do not write this lightly. But the speed and scale of global shifts is so rapid that this needs to be acknowledged as a possibility. It is hard to over-estimate the scale of change taking place in global economic and geopolitical relations in a matter of days.”

Kit Juckes at SocGen also expressed dollar reservations; “My biggest underlying concern with the dollar is that even after so many years of exceptionalism that have taken it to levels it hasn’t seen since 1985 in real effective terms, it only takes a few chinks in the armour for it to look weaker.”

ING commented on the 2025 outlook; “Given this week’s events and the fact that DXY is heavily weighted towards European currencies, it seems fair to say that DXY has now topped for the year.”

According to Lloyds Bank; “We’re witnessing regular acts of US economic self-harm, which will cause short-term disruptions at the very least. On top of that, we’ve seen an indiscriminate tearing at the rules and bureaucracy, which will invariably have unforeseen consequences.”

The bank noted the risk of capital outflows; “that flow could become a torrent as policy implications begin to galvanise, or we see a more sustained pick up in market volatility. We had shaded our longer-term core bullish USD view over the past couple of weeks, but we now abandon that viewpoint entirely.”

Doubts over the US outlook were compounded by the German proposals for a huge EUR500bn boost to infrastructure spending as well as a sharp increase in defence spending.

A re-rating of the Euro-area outlook and jump in yields triggered a Euro surge and further gains would be a tailwind for GBP/USD.

JP Morgan commented; “We are now approaching that inflection point prompting us to turn bearish on the dollar and constructive on the Euro for the first time since 2024. This represents a substantial change in view for us. It sees a potential EUR/USD move to 1.12-1.14.

Bank of America considers that the 1.20 area could be in reach late this year.

UBS is still wary over Pound fundamentals; “Risks regarding the UK’s fiscal and current account situation remain and pose a downside risk to GBP—in case of “the wrong kind of carry” whereby FX and rates can decouple as we saw in January.”

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