July 9, 2025 – Written by James Fuller

STORY LINK Pound to US Dollar Forecast: GBP/USD Faces Critical Tests Ahead

The Pound to Dollar exchange rate (GBP/USD) dipped to 2-week lows at 1.3530 on Tuesday before recovering ground, but failed to hold above 1.3600 and traded just below this level.

Sustained losses below 1.3550 would trigger fresh speculation that the Pound has peaked.

According to UoB; “Downward momentum continues to build, albeit not by much. That said, the likelihood of GBP dropping to 1.3510 is increasing. Overall, only a breach of 1.3680 (‘strong resistance’ level was at 1.3700 yesterday) would indicate that the current downward bias has faded.”

Scotiabank remains bullish on the GBP/USD outlook, but uneasy over recent moves; “we look to a near-term range defined by 1.3550 support and 1.3650 resistance.”

Longer-term Bank of America is still forecasting GBP/USD will strengthen to 1.41 at the end of 2025.

Markets remain wary over the UK fiscal position. Confidence in the UK bond market remains fragile with the 10-year yield trading above 4.60% which will maintain upward pressure on debt-servicing costs.

If global bond yields continue to increase, there will be further upward pressure on UK debt-servicing with the risk of further bond selling and a doom loop.

According to ING; “We find it difficult to find factors that would bring a halt to the strong upward momentum in 30Y global rates from a structural perspective. The fiscal concerns are broad-based, with also the US and UK worrying investors.”

Scotiabank added; “market participants remain concerned about domestic political developments and ongoing uncertainty related to the fiscal outlook as UK yields hit fresh highs.”

Global turbulence sparked by US tariff policies would pose further risks.

In its latest Financial Stability Report (FSR) the Bank of England warned over damage from global trade wars.

Bank of England Governor Bailey commented; “There has been a notable change in the usual correlation patterns between the dollar and other US assets, including equities and government bond yields.”

He added; “And given these developments, the risk of sharp falls in risky asset prices, abrupt shifts in asset allocation and a more prolonged breakdown in historical correlations remains high, and vulnerabilities in market-based finance could amplify such moves which could impact the availability and cost of credit here in the UK.”

Federal Reserve policy will be a key element, especially with President Trump intensifying his attacks on Chair Powell and calling for his immediate resignation.

At this stage, markets see only around a 5% chance that rates will be cut this month with the chances of a September cut declining to around 65%.

Market pricing could change sharply if political pressure on the Fed escalates and Trump nominates a very dovish candidate to replace Powell.

Standard Chartered did note that any controversial nominations could face a tough Congressional battle; “Any future board nominee has to get through the Senate Finance Committee where Republicans have a one-vote majority.”

It added; “Thom Tillis, a conservative Republican senator on the committee, voted against the fiscal package and will not be running for re-election in 2026. He is unlikely to give a pass to a candidate he considers unqualified.”

MUFG noted that the Fed debate has been damaging; “These developments are all factors that have been undermining investor confidence over recent months.”

The bank does consider that a considerable amount of dollar negatives have now been priced in; “It’s why we are forecasting a far more modest dollar decline in H2 (-2%) than the 10.7% drop in H1.”

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TAGS: Pound Dollar Forecasts