July 2, 2025 – Written by Tim Boyer

STORY LINK Pound to Dollar Forecast: “GBP Must Break and Hold 1.3800 Soon”

Pound Serling (GBP) was unable to make any headway against the US Dollar (USD) in early Europe on Wednesday and slid further to hit 1-week lows below 1.3600 early in US trading before settling around 1.3620.

The Pound to Dollar exchange rate (GBP/USD) was hurt on domestic grounds while the dollar was resilient despite a shock US jobs report.

UoB commented; “There are early signs that upward momentum is beginning to slow. From here, GBP must break and hold above 1.3800 soon, or the probability of further GBP strength will diminish rapidly.”

In the near term, it expects GBP/USD will trade between 1.3700-1.3780.

Scotiabank took a similar view with evidence that the bullish trend is close to exhaustion and added; “We continue to highlight the importance of medium-term support at the 50 day MA (1.3462) and anticipate a near -term range bound between 1.3650 support and 1.3750/1.3780 resistance.”

MUFG has a year-end forecast of 1.3950 amid renewed dollar losses.

The Pound was undermined initially by fiscal concerns following yesterday’s House of Commons vote on welfare reform.

The government survived, but only through a series of U-turns which dramatically watered down the content.

In this context, there will be little in the way of medium-term savings, reinforcing underlying fiscal concerns with increased speculation over Autumn tax rises.

Later in the session, monetary policy was the key element with notably dovish comments from Bank of England (BoE) external MPC member Taylor.

He commented; “Previously, I had seen a UK soft landing in the cards, with some remaining upside risks to inflation from the bump in 2025.”

He added; “Now I see that soft landing as being at risk, and greater probability of a downside scenario in 2026 pushing us off track as demand weakness and trade disruptions build.”

Taylor called for three further rate cuts in 2025. Markets had expected dovish comments given his vote for a cut at the June MPC meeting, but the tone was more downbeat than expected.

Scotiabank noted the shift in BoE market pricing; “Rates markets are pricing in about 56bpts of easing by year end, down adding about 15bpts over the last month or so.”

Traders are also pricing in at least a 90% chance of a rate cut at the August meeting.

The dollar survived despite much weaker-than-expected jobs data.

ADP reported that private payrolls declined 33,000 for June compared with consensus forecasts of an increase close to 100,000 and the May increase was revised lower to 29,000 from the 37,000 reported previously. This was the first negative figure since January 2021.

The data reinforced concerns over the labour market, although the latest Challenger survey reported that the pace of layoffs had eased in June.

Markets were also having to digest US fiscal developments and look ahead to major announcements on trade policy next week.

The Senate passed the budget Bill with Vice President Vance having to cast the tie-breaker vote. The legislation will now go back to the House for further debate.

The Congressional Budget Office has estimated that debt will be increased by $3.3trn over the next 10 years.

Win Thin, global head of markets strategy at Brown Brothers Harriman & Co commented; “I think the knee-jerk reaction was to buy the dollar on lower fiscal policy uncertainty.”

He added; “To me, pushing through a massive tax cut will eventually widen the budget deficit, which is ultimately dollar-negative.”

BNP Paribas FX portfolio manager Peter Vassallo pointed to underlying unpredictability surrounding policy making; “This switch towards a more uncertain policy regime created an environment where we as market participants see the U.S. as more hostile to international capital flows, international trading.”

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TAGS: Pound Dollar Forecasts