July 8, 2025 – Written by David Woodsmith

STORY LINK Pound-to-Dollar Forecast: GBP Below 1.36 on Net USD Gains

The latest tariff developments have not undermined the US Dollar while medium-term budget fears continue to erode Pound Sterling support.

The Pound to Dollar exchange rate (GBP/USD) failed near 1.3650 on Tuesday and dipped back below 1.3600 with lows at 1.3570.

According to UoB; “While downward momentum has increased further, we prefer to wait for GBP to close below 1.3560 before expecting a move to 1.3510. On the upside, the ‘strong resistance’ level is now at 1.3700.”

Scotiabank is still broadly bullish on GBP/USD, but added; “The latest pullback is worrisome, however, and we highlight the importance of the 50 day MA (1.3481) as a critical source of medium-term support. We look to a near-term range defined by 1.3550 support and 1.3650 resistance.

A break below 1.3650 would push the pair to 2-week lows, increasing the risk of a slide towards 1.3400.

The US Administration announced 25% tariffs for Japan and South Korea as the first batch of tariff letters was released. The deadline, however, was pushed back to August 1st from July 9th.

Overall risk appetite held firm despite the announcements while there were hopes that tariffs would be watered down, lessening the threat of a severe US downturn.

According to Barclays currency strategist Skylar Montgomery Koning; “The fact that some of the more problematic policies from the US administration have been dialled back — and there are deals getting done — means that the economic pain for the US won’t be as bad as originally feared.”

Scotiabank added; “the August 1 deadline means another punt and time for more negotiations before the hammer drops. Secondly, the delay to August for all reciprocal tariffs now means the impact on the US economy may not be felt until much later in the year.”

The US NFIB small-business confidence index declined marginally to 98.6 for June from 98.8 previously and fractionally below consensus forecasts with concerns over excess inventories a key negative factor.

The NFIB commented on interest rates; “Inflation remains stubbornly above the Federal Reserve’s target, therefore the policy rate remains over 4 percent with the possibility of cuts getting pushed down the road. The President wants a lower rate, and sometime this fall, market conditions will likely justify a rate cut by the FOMC.”

The UK Office for Budget Responsibility (OBR) has warned over the medium-term fiscal outlook and criticised the lack of effort to bring borrowing back under control after two major shocks.

According to the OBR; “Planned tax rises have been reversed, and, more significantly, planned spending reductions have been abandoned. The more persistent fiscal deficits and ratcheting up of debt that resulted have been accommodated by successive loosening of the fiscal rules.”

Scotiabank commented; “market participants remain concerned about domestic political developments and ongoing uncertainty related to the fiscal outlook as UK yields hit fresh highs. Media are focusing on the OBR’s latest report highlighting shifts in the distribution of UK government debt holders.”

The UK 10-year bond yield increased to just above 4.65% early in the day before edging lower to 4.62%.

According to the OBR, the UK is facing the 3rd highest borrowing costs among 36 major economies which will maintain upward pressure on debt-servicing costs.

Jefferies strategist Mohit Kumar commented; “Our view remains negative on the growth and fiscal picture in the UK. The government will have no choice but to increase taxes, but we (are) reaching a point where further tax rises can be counterproductive.”

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TAGS: Pound Dollar Forecasts