Throughout 2024, the GBP has been striving to resist the strength of the US dollar. But after Trump won the US presidential election, the resilience of the pound quickly collapsed. Therefore, the pound plummeted to the support level of 1.2475 against the US dollar, which is the lowest level in seven months, and stabilized around 1.2510 in the last few hours of trading in 2024. The highest level of GBP/USD in 2024 was the resistance level of 1.3434 recorded at the beginning of September trading, which is the highest level of the currency pair in two years.

Forecast for the pound in 2025

According to licensed trading platforms, despite recent selling pressure on the pound, Goldman Sachs remains optimistic about the fundamentals of the pound. But Royal Bank of Canada (RBC) Capital Markets expects that if this happens, the strength of the pound will quickly dissipate. Many investment banks expect the pound to perform strongly in early 2025, but it is facing increasing difficulties and may become even more fragile later that year. However, foreign exchange analysts at Danske Bank believe that in the long run, some favorable factors for the pound seem to be fading, and it is expected that the Bank of England will adopt a more relaxed policy, ultimately putting pressure on the pound.

Future policies of the Bank of England in 2025

You should note that monetary policy will still be the main focus in 2025. In this regard, amidst the ongoing uncertainty surrounding inflation trends, the Bank of England has only cut interest rates twice in 2024. Obviously, this change in yield is crucial for supporting the pound. At present, the market expects the Bank of England to only cut interest rates twice in 2025, but most investment banks expect the Bank of England to take a more moderate stance.

At the last meeting of 2024, with a vote of 6-3, the UK interest rate was maintained at 4.75%, and ING expects a significant shift in this regard in the first quarter of 2025. Despite the latest hard salary data, the moderate stance within the Monetary Policy Committee (MPC) is becoming increasingly apparent, indicating that the central bank is more concerned about the slowdown in economic activity. This reinforces our moderate view of the Bank of England in 2025, where we expect a 150 basis point rate cut, compared to market expectations of around 55 basis points.

But what about the Federal Reserve?

In the last few weeks of 2024, there was a significant change in expectations for US monetary policy. At its last meeting in 2024, the Federal Reserve stated that it will only cut interest rates twice in 2025. In its latest economic forecast for September, the Federal Reserve stated that it may cut interest rates four times.

Analysts point out that the shift in the Federal Reserve's monetary policy is reasonable, as it is expected that the US economy will remain relatively healthy at least in the first half of 2025. Overall, most major banks have lowered their interest rate expectations. In addition, Bank of America analysts predict that there will only be two interest rate cuts in 2025. Wells Fargo seems to be more aggressive and is expected to only cut interest rates once.

However, not all financial market analysts believe that the US economy can withstand geopolitical uncertainty and the unexpected consequences of President Trump's policies.

GBP/USD may face a turbulent trading year

The pound may experience a turbulent year, first weak and then possibly recovering. This is based on the 2025 outlook for major currencies released by global payment company Corbyn. The company believes that due to domestic economic challenges and potential interest rate cuts, the pound will experience turbulence in 2025. International factors, including changes in US policies. At the same time, early 2025 may be difficult as there are some factors that may support the recovery later that year, and the GBP/USD exchange rate may break through the threshold of 1.30 by the end of 2025.

The company believes that there may be turbulence in the pound at the beginning of 2025, and in the event of a loss of economic momentum, the pound may weaken against the US dollar. According to the economic calendar data, the UK economy will experience a significant slowdown in the second half of 2024, leading to a weak labor market, increased wage pressure, and lower inflation expectations. It is expected that the Bank of England's interest rate cut will exceed market expectations, thus limiting the support of interest rate differentials for the pound against the euro.

The company's forecast for the GBP/USD exchange rate is 1.27 in the first quarter, 1.28 in the second quarter, 1.29 in the third quarter, and 1.30 in the fourth quarter.