June 24, 2025 – Written by Frank Davies
STORY LINK Pound to Dollar Forecast 2025: Year-end GBP/USD Target of 1.38
The US Dollar (USD) gained ground against the Euro (EUR) and Pound Sterling (GBP) on Monday as markets reacted to the US military strikes on Iranian nuclear facilities.
There was choppy trading during the day with the dollar unable to hold its best levels amid fresh concerns that Fed independence could be compromised.
The Pound to Dollar (GBP/USD) exchange rate dipped to 5-week lows at 1.3370 before a strong recovery to 1.3445.
According to UoB; “GBP may retest the 1.3385 level, but a sustained break below this level seems unlikely for now.”
On a longer-term view, UBS still has a year-end GBP/USD target of 1.38.
Risk appetite and oil prices will remain key elements in the near term.
Credit Agricole commented; “A key question for FX investors is whether these developments would pave the way for the currency to reassess its position as the high-yielding, safe-haven King of FX. Our view is that, while a second coming of King USD seems unlikely for now, the currency could regain more ground in the near term across the board.”
Commerzbank’s Head of FX and Commodity Research Thu Lan Nguyen commented that higher oil prices tend to support the dollar. She added; “However, this is less due to its status as a safe haven and more to do with the fact that the US terms of trade improve when the oil price rises. This usually leads to an appreciation of the dollar, which reflects this gain in purchasing power.”
On a medium-term view HSBC notes some reluctance to sell the dollar at these levels, but added; “We have sympathy with this hesitation over the USD but the conditions for a sustained recovery are not in place, at least for now.”
The US and UK PMI business confidence data did not have a major impact. There were, however, potentially important shifts on inflation. As far as the UK is concerned, the increase in output prices slowed to 4-year low, reinforcing consensus forecasts of an August Bank of England rate cut.
In contrast, the increase in US prices charged for goods and services was the second highest since September 2022. In theory, this could support the dollar, but the US currency will be vulnerable if there is dovish Fed rhetoric.
In this context, Commerzbank also noted a fresh threat by President Trump late last week to fire Fed Chair Powell and considers that dollar would also not benefit from higher energy prices if there is a more dovish Fed policy.
According to Thu Lan Nguyen; “It should now be clear to everyone that such a move would be a disaster for the US dollar. Any successor to Powell would have to cave in to the governments pressure towards an easier monetary policy as otherwise they would also very quickly find themselves out of a job.”
She added; “USD investors now have to once again grapple with the increased risk that the Fed will lose its independence and the dollar will crash as a result. Even if Powell remains in office, one thing should now be clear: the likelihood that he will be succeeded by a conventional candidate has become significantly lower.”
Given these concerns, Fed Chair Powell’s testimony to Congress on Tuesday and Wednesday will be watched very closely.
Bank of America commented on the dollar outlook; “We remain bearish for the year, but recognize increasing 2-way risks in the near-term.”
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TAGS: Pound Dollar Forecasts
