June 5, 2025 – Written by Ben Hughes

STORY LINK Pound sterling to Dollar Forecast: “USD Remains Skewed to Downside”

The Pound to Dollar exchange rate (GBP/USD) advanced to 1.3585 in Europe on Thursday, just below the 39-month high recorded last month.

The dollar has lost ground amid further reservations over the economy and increased pressure on the Federal Reserve to cut interest rates.

Resistance levels may be tough to break down unless US data over the remainder of this week is notably weaker than expected or US-China relations deteriorate further.

According to UoB, “currently, GBP does not appear to have enough momentum to break clearly above 1.3600.”

US data released on Wednesday was weaker than expected, with the ADP private payrolls increase held to 37,000 for May from 60,000 in April and the lowest increase since February 2022.

The ISM services-sector index also dipped to an 11-month low of 49.9 for May from 51.6 the previous month.

There was mixed evidence in the latest Federal Reserve Beige Book on US economic conditions.

According to the survey, “All Districts reported elevated levels of economic and policy uncertainty, leading to a cautious approach.”

It added, “Tariff uncertainty continues to complicate business planning, with firms hesitant to commit capital or increase hiring.”

There will be ongoing concerns that uncertainty will damage the economic outlook.

Danske Bank maintains a cautious stance on the dollar; “Overall, the balance of risks for the USD remains skewed to the downside amid renewed trade policy volatility, weakening domestic data momentum, and persistent uncertainty premia embedded in USD assets.”

As far as trade policy is concerned, Danske commented, “Our view remains that broad-based, US-centric tariffs are inherently more negative for the USD than for its trading partners. The US is more exposed on the import side, and rising trade-related uncertainty is likely to weigh on capital expenditure and hiring decisions – particularly if the Fed remains constrained by inflation credibility concerns.”

In response to weaker data, there have been further calls from President Trump that interest rates should be cut immediately with another round of attacks on Fed Chair Powell.

ING commented, “We’re also looking out for whether political pressure on the Fed to cut rates increases the term or risk premium in Treasuries. That would be a dollar negative. This also serves as a reminder that the end of Fed Chair Powell’s tenure in May next year could be a difficult time for both bond markets and the dollar.”

Rabobank added, “Markets might shrug, but we get a new Fed Chair in under a year.”

Forthcoming data will be potentially crucial.

According to MUFG, “The decline in US yields indicates that market participants are putting more weight on loosening labour market conditions than higher inflation from tariff hikes when determining the outlook for Fed policy.”

In this context, Friday’s employment report will inevitably be a key element for markets.

Mansoor Mohi-uddin, chief economist at Bank of Singapore, commented, “May’s payrolls data tomorrow will be important to see if investor concerns are valid or overdone. A soft labour market report is likely to result in outsize falls in the U.S. dollar.”

Consensus forecasts are for an increase in non-farm payrolls of around 125,000 for May from 177,000 the previous month with the unemployment rate holding at 4.2%.

The dollar will have scope for at least a limited and temporary recovery if there is stronger-than-expected data, while a weak release would trigger renewed selling pressure.

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• The US dollar initially tried to rally against the Japanese yen, only to fall pretty significantly.
• This is a pattern that we have been in for some time, as the ¥142 level has been a major support level.
• With that being the case, the market is likely to continue to pay close attention to the ¥142 level where we have seen the market bounce multiple times, and I do think that could be an area that we may have to test.

If we can stay above that level, then I think it’s a very bullish sign, as even with the poor ADP Non-Farm Payroll numbers and the ISM Services PMI numbers coming out of 49.9, this would suggest that there is quite a bit of strength in the US dollar as it did not break down through support. That being said, the US dollar against the Japanese yen is a little bit different as far as currency markets are concerned.

Central Banks

Keep in mind that the Bank of Japan has a major issue on its hands, as people are not buying government bonds, with a couple of days where we’ve had absolutely no bid. This means that the Bank of Japan may very well be in a situation where they have to start quantitative easing again, stepping into the market to buy those very well bonds. However, it’s also worth noting that the data softening in the US might make people think that the Federal Reserve is likely to drop rates by the end of the year, but even if they do, the reality is that the interest rate differential between the United States and Japan is about a mile wide. In other words, the interest rate differential will attract traders sooner or later, and they will hold onto US dollars, collecting the swap along the way pad their trading accounts.

Want to trade our USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

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• The British pound initially rallied against the Japanese in during the trading session on Wednesday as we tested the crucial 195 level again.
• The 195 level is an area that’s been important multiple times.
• So, I do think it makes a lot of sense that we are just hanging out here.

With that being said, I like the idea of buying dips, but we may get a little bit deeper correction from which we can trade from. With that being the case, I am taking a look at the 50 day EMA as well as the 200 day EMA indicators underneath to offer a bit of support. Anything below there probably opens up a move back down to the 190 yen level. The interest rate differential between the United Kingdom and the Japanese yen itself is pretty wide. So, I do think that there will be buyers out there willing to get involved and start buying the pound.

Timing Will Matter

Nonetheless, this is more or less a question of when finding a trade, whether or not you can find the timing correct as well. This is a very volatile market, but you should also keep in mind that this is a market that, quite frankly, I think you want to be looking at the upside, regardless of the fact that we had a pretty ugly day on Wednesday. A lot of this might have been driven mainly by bad news out of the United States with the employment and the ISM services PMI.

As you can see, we had fallen on the hourly chart pretty significantly, but really at the end of the day, sooner or later, people realize that the British pound and the Japanese yen have nothing to do with the United States, at least not directly. And they come in and they take advantage of that carry trade.

Begin trading our daily forecasts and analysis. Here is a list of Forex brokers in Japan to work with.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

The GBPJPY pair returned to fluctuated below 194.55 level, forming some of the intraday bearish waves, attempting to gather the required positive momentum to reach the main positive stations that are located near 195.70 reaching 196.45.

Depending on forming an important support by the moving average 55 reach to 192.40, to confirm the confinement of the trading within the bullish track, to increase the chances for reaching the suggested targets, while the decline below this support will cancel the bullish suggestion in the current trading, to expect suffering new losses by reaching 191.65 reaching 38.2%Fibonacci correction level at 190.90.

The expected trading range for today is between 193.00 and 195.70

Trend forecast: Bullish