Entering 2025, the GBP/USD trend continues to weaken. Today, the price of the pound against the US dollar has fallen to around 1.2440, hitting an eight month low. This trend is driven by multiple factors, including expected changes in the Bank of England's (BoE) future interest rate policy and the impact on the US economic outlook. Especially the strong performance of the US dollar has once again challenged the support area of the pound and further intensified the downward pressure on the pound.

As of now, the US dollar index (DXY) has hit a new high of 108.60 in over two years, and then slightly retreated to 108.70, still maintaining a strong range. The strengthening of the US dollar is mainly due to the optimistic expectations of the market for the growth prospects of the US economy, especially in the context of the upcoming new US government. Trump's economic policies may push up inflationary pressures in the US, forcing the Federal Reserve to slow down the pace of interest rate cuts. At the same time, the weakness of the pound is largely due to the sustained downturn in the UK economy, particularly weak data from the manufacturing and labor markets, which has intensified market expectations for further interest rate cuts by the Bank of England.

Market analysis: Strong US dollar and downward pressure on the pound

From a fundamental perspective, the sustained decline of the pound is not accidental. After experiencing a relatively loose monetary policy in 2024, the market generally expects the Bank of England to adopt a more aggressive interest rate cut strategy in 2025.

Goldman Sachs analysts predict that the Bank of England will cut interest rates four times this year, each by 25 basis points, and the benchmark interest rate is expected to drop to 3.75% by the end of the year. This expectation puts greater pressure on the pound to depreciate, especially against the backdrop of a rebound in market risk appetite and a strong US dollar, making the decline of the pound against the US dollar seem difficult to reverse.

In addition, the economic data in the UK is also not optimistic. The latest S&P Global Manufacturing Purchasing Managers' Index (PMI) further confirms the weakness of the manufacturing industry, with the final data dropping to 47.0, a downward revision from the initial value of 47.3, indicating that the UK economy has still not effectively recovered growth. Especially the inflationary pressure in the service industry still exists, and despite the Bank of England's interest rate cuts, the structural problems of the UK economy have not been effectively resolved.

On the contrary, the performance and policy expectations of the US economy have provided strong support for the US dollar. Investors generally expect that Trump's economic policies after the US presidential election will stimulate US economic growth, especially potential changes in immigration policies, import tariffs, and tax cuts, which may drive US economic recovery and exacerbate inflationary pressures. This situation will prompt the Federal Reserve to slow down the pace of interest rate cuts, thereby forming support for the US dollar.

From the perspective of the Federal Reserve's policy expectations, the latest "dot plot" shows that the federal funds rate will rise to 3.9% by the end of 2025, significantly higher than the 3.4% in September. This further confirms the market's expectation of a more hawkish policy from the Federal Reserve. Investors are still waiting for the upcoming release of US labor market data, and any further strong employment report could weaken the space for the Federal Reserve to cut interest rates, further strengthening the strength of the US dollar.

Technical analysis: The downward trend of the pound is evident

From a technical perspective, the downward pressure on the pound against the US dollar is also evident. Since the beginning of the year, the pound has broken through the psychological support level of 1.2500, and once it falls below this level, it is difficult to see strong rebound signals in the short term. On the daily chart, the GBP/USD has fallen below the upward trend line since October 2023, and its current position is far below 1.2600, indicating a clear bearish trend.

All short-term to long-term moving averages (EMAs) of the index show a downward trend, indicating that the trend of the pound is still dominated by bears in the long term. On the 14th, the Relative Strength Index (RSI) also fell below 40, indicating that the pound is facing strong downward momentum and there is no sign of reversal in the short term.

Furthermore, the recent support level for the pound against the US dollar is concentrated around 1.2485. If this level is breached, the next target may fall to around 1.2300, which is the low point on April 22. In terms of rebound, if the pound can rise above 1.2500, the December 17th high of 1.2730 will become an upward resistance.

Future Trend Outlook: Continued Pressure

Looking ahead, the downside risk of the pound against the US dollar remains significant, especially against the backdrop of a bleak economic outlook in the UK and the possibility of the Bank of England taking more aggressive interest rate cuts. The strength of the US dollar has not eased, and it is expected that the Federal Reserve's policies will continue to provide support for the US dollar. The market will closely monitor the upcoming US labor market data, and a strong employment report may further suppress the pound, while weak employment data may provide some breathing space for the pound in the short term. However, overall, the pound will still face significant depreciation pressure.

In the short term, the range of 1.2485 to 1.2300 may become an important support area for the pound, and if it breaks through this range, it may further open up downward space to 1.2200 or even lower. However, considering the strength of the US dollar and the economic and monetary policy pressures faced by the pound, it is expected that the rebound space will also be limited, especially between 1.2500 and 1.2600, and the pound may face stronger selling pressure.