UK economists expect the GBP/USD exchange rate to retreat in the near-term outlook as steady BoE rates and doubts over the durability of hawkish policy guidance weigh on Pound Sterling.
The Pound to Dollar exchange rate (GBP/USD) traded around 1.3443 on Friday morning after gaining more than 1.3% over the previous two sessions.
GBP/USD closed Thursday at 1.3461, leaving the pair 1.6% higher for July but still below the month’s 1.3558 peak.
Rabobank expects that recovery to fade, forecasting Cable in a 1.32–1.33 range over the next one to three months.
The bank’s argument is that markets have already tightened UK monetary conditions on the Bank of England’s behalf by pricing further rate increases and pushing borrowing costs higher.
“In RaboResearch’s view, the heavy lifting done by the market may help the Bank avoid an actual hike in policy rates,” Rabobank said.
Thursday’s BoE decision reinforced that possibility. Bank Rate remained at 3.75%, despite three policymakers voting for an immediate increase.
The vote looked hawkish, but the majority still preferred to wait for clearer evidence that higher energy costs were feeding into wages and domestic prices.
Rabobank believes markets will initially continue “taking the BoE’s hawkish rhetoric at face value and maintain its expectations of rate hikes”.
The risk is that investors eventually demand action.
The bank questioned whether another unchanged decision could cause markets to doubt whether the Monetary Policy Committee is “truly focused on its inflation mandate”, particularly if policymakers continue talking tough without raising rates.
The latest Exchange Rates UK forecast survey poll, see chart above, broadly supports Rabobank’s near-term caution. The median bank projection falls to around 1.33 by the end of the third quarter before recovering gradually through 2027 and moving above 1.40 in late 2028.
Rabobank is less convinced about the Pound’s medium-term prospects.
“Further out we see risk that UK fiscal concerns will combine with steady BoE rates to weigh on the pound,” the bank said.
The UK labour market remains central to that view. Before the energy shock, weaker employment conditions had supported expectations that the BoE would cut rates this year.
Recent signs of stabilisation have complicated the picture and may increase the risk of “second order price effects” as oil prices rise again.
Rabobank said stronger labour data or “another ramp higher in UK CPI inflation data” could increase pressure on the Bank “to put its money where its mouth is”.
Near-Term GBP/USD Forecast: Rabobank Targets 1.32–1.33 as BoE Credibility Faces a Test
Rabobank’s range implies that Thursday’s move above 1.34 will not be sustained.
A decline to 1.33 would reverse much of the latest rally, while 1.32 would return Cable towards the lower part of its recent trading range.
The Dollar side is also important. Sterling benefited when short-term US yields and the greenback fell after the Federal Reserve held rates steady, but Rabobank does not view that as enough to secure a lasting Pound advance.
Its central judgement is that the BoE may continue using hawkish language while avoiding an actual increase.
That strategy can support Sterling only while markets believe a hike remains credible. Rabobank’s 1.32–1.33 forecast suggests that confidence will become harder to maintain.
Our currency coverage draws on live market data, official economic releases and published bank research.
