Modified: Friday, 12 December 2025 10:06 BST

– Written by


Tim Boyer

STORY LINK British Pound to Dollar Forecast: GBP/USD Holds 1.34 Despite UK Recession Fears

The British Pound to Dollar exchange rate (GBP/USD) eased to around 1.338 as markets digested a shock 0.1% contraction in UK GDP for October, marking a second straight monthly decline.

The data undercut recent Pound Sterling optimism and reinforced expectations of a BoE rate cut next week.

Sterling’s ability to stabilise now hinges on whether continued US Dollar weakness can offset deepening UK growth concerns.

GBP/USD Forecasts: 7-Week Best

The dollar lost ground following Wednesday’s Federal Reserve policy rate cut with the Pound to Dollar (GBP/USD) exchange rate jumping to 7-week highs just below 1.3400 before settling around 1.3360.

A sustained move above 1.3400 would boost market confidence in the Pound.

The Pound is likely to remain dependent on dollar weakness to make gains.

From a medium-term view, SocGen forecasts a GBP/USD retreat to 1.27 at the end of 2026 as the dollar rebounds.

The next domestic hurdle for the Pound will be Friday’s GDP data with consensus forecasts of 0.1% growth for October after a 0.1% decline the previous month. Stronger than expected data would help support the Pound.

The Fed met strong market expectations with a further 25 basis-point cut to 3.75%.

There was further evidence of a divided Fed with two members voting against the latest cut while Miran voted for a larger 50 basis-point cut.

As far as 2026 is concerned, the median projection is for one cut, but there were wide divisions with seven members backing no cut.

MUFG commented; “The soft dissents reinforce our view that it will become even harder to cut rates further at the start of next year.

Chair Powell noted that the bank would be data dependent and did not rule out a further move early in 2026.

Danske Bank commented; “Powell made it clear that the Fed is in no hurry to ease its policy further. At the same time, he also refrained from clearly pushing back against the market pricing, which currently sees slightly more than 50bp of additional cuts for the coming year.”

There will be a greater focus on the Bank of England ahead of next week’s policy decision.

There are strong expectations that there will be a 25 basis-point cut to 3.75% and, following the latest Federal Reserve cut, markets are pricing in a slightly more aggressive BoE stance next year.

According to ANZ; “As the inflation rate moderates, the policy rate needs to be cut to prevent the real rate from rising. The dynamics of a sluggish labour market and a disinflationary budget indicate that price pressures will cool over the coming months.”

It added; “However, both household and business inflation expectations remain elevated. It is, therefore, likely that the MPC eases the policy rate gradually to anchor inflation expectations at lower levels. Following the expected 25bp rate at next week’s meeting, we forecast three additional 25bp cuts in 2026.”

Like this piece? Please share with your friends and colleagues:

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