July 20, 2025 – Written by David Woodsmith
STORY LINK Turning Point for Pound Sterling? Pound to Dollar Forecast Update
The Pound-to-Dollar exchange rate (GBP/USD) found support at 1.3370 on Thursday and has rallied to 1.3460 in Europe on Friday.
Firm US data underpinned the dollar on Thursday, but it has retreated on Friday
Risk appetite holds firm which has provided an element of Pound support.
A key question is whether the Pound has found a turning point or whether it is a short-term correction within a larger underlying retreat.
UoB commented; “downward momentum has slowed somewhat, but we will maintain our view as long as 1.3490 (‘strong resistance’ previously at 1.3500) is not breached.”
According to Scotiabank, there is the possibility of a double bottom, but it is not convinced and added; “A return to the 50 day MA (1.3505) would provide further reassurance that the bull trend remains intact. We look to near-term support below 1.3400 and see no resistance ahead of 1.3550.”
Federal Reserve policy will remain a key element with further speculation over the interest rate trends as well as the crucial issue of central bank independence.
In comments on Thursday, Fed Governor Waller stated that the central bank should cut interest rates at the July policy meeting.
Markets are pricing in less than a 5% chance of a rate cut at the July meeting with the chances of a September cut around 40%.
ING commented; “Without Trump’s relentless pressure and the dovish dissent from Christopher Waller and Michelle Bowman, September likely wouldn’t be on the table. Yesterday, we heard from Waller that the Fed should cut rates at the July meeting due to the weakening labour market, while on the data side, retail sales came in strong and initial jobless claims continued to cool.”
It added; “One of our key calls this summer is that this return to dollar ‘functionality’ reduces the likelihood of new selloffs – unless Trump fires Fed Chair Jay Powell (as Wednesday’s brief dollar collapse showed) or escalates protectionism beyond markets’ current tolerance, particularly against China. We don’t expect either, and still see some dollar support in the coming months.”
There are still concerns over the attacks on Fed independence.
According to Commonwealth Bank of Australia “The USD remains vulnerable to the downside if concerns about U.S. policymaking further undermine investor confidence in USD assets.”
MUFG is also still concerned over the on-going threat of political interference; “So this threat to the Fed independence will not go away. Whether it’s via explicit attempts to fire Powell, or continuously undermine him through Congressional interference (Fed building renovations criticism continues to build) damage is being done to the independence and credibility of the Fed.”
HSBC added; “the topic of Fed independence remains front and centre for the FX market. This structural concern, rather than the cyclical angle, is the key Fed-related driver for the USD.”
The Bank of England (BoE) policy debate will also continue.
Citifx expects an August cut, but is no longer backing a cut in September as well. It does, however, expect cut at every meeting from November to March. This could lead to Pound pressure later in 2025.
Goldman Sachs takes the same view. The bank’s chief European economist Sven Jari Stehn commented; “While the hurdle for speeding up cuts in September looks higher after this week’s data, we now expect sequential cuts from November until reaching a 3% terminal rate in March 2026 (versus February before).
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TAGS: Currency Predictions Pound Dollar Forecasts
