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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TAGS: Pound Dollar Forecasts