Pound To USD Forecast: Is Now A Good Time To Buy US Dollars With Pounds?

GBPUSD Forecast Highlights

• Sterling price has weakened further into the New Year
• Subdued UK economic prospects and strong Dollar are weighing on Cable
• Bearish momentum may lessen GBPUSD at around 1.240-1.250 on technical buying

How has the Pound performed against the Dollar recently?

The New Year appears to be bringing some respite to the bearish GBPUSD.

Cable was swinging upwards in fine form until the tax-raising Budget was announced by the Chancellor in late autumn, which promptly checked its advance. Since then, the rate has been haemorrhaging strength. GBPUSD dipped to a six-month low in early 2025, on low volume, to probe the 52-week lows of 1.230 (see below).

What now? What is the market trying to say about the future of GBPUSD? Trendwise, the current slide remains in motion. The pattern of lower lows and lower highs is intact.

But its recent v-shaped drop-and-recovery suggests some tentative buying at 1.230-1.240. Perhaps the market is seeing some value after a ten-week drop from 1.300. Even the Financial Times remarked last week (££) that “Britain’s economic outlook in fact looks quite robust compared to other advanced economies.”

But to overcome GBPUSD’s bearish posture requires more than just technical buying. Macro catalysts with bullish leanings are needed to revise the market’s downbeat view of the UK exchange rate. For now, these catalysts are critically absent. UK’s economic growth is uninspiring, inflation looks ready to rebound, and interest rates remain at elevated levels.

What’s more, the dollar is holding on to its strength. The financial market is eagerly awaiting for the new Trump administration this month (inauguration on January 20). What Trump 2.0 will do to the economy is a big unknown, although the stock market is already loving Donald (see Nasdaq’s relentless rise since Nov 5).

For now, the rate may bounce around 1.250, until a new market consensus is formed.

Is it a good time to buy US Dollars with pounds?

Given that Pound Sterling has weakened against the Dollar, should we sell GBP to buy USD before it drops further?

If you need dollars now, watch to sell some Pound Sterling on any bounce to buy dollars.

But if you can wait, perhaps look for a rebound above 1.260 to let go of some Sterling for Dollars. The decline from 1.300 is ‘oversold’ in technical terms and may be due for a further bounce. There is risk in waiting though, as the rate could stay in a sideways-negative trend longer than anticipated.

Will the pound get stronger against the USD in the first quarter of 2025?

There are many serious macro factors weighing on the GBP rates these days. However, extrapolating the current GBPUSD downtrend may not necessarily work due to the complexity of the economic trends.

For one, the market is eagerly eyeing new policy guidance from the incoming Trump administration. Tariffs, budgets, and geopolitical decisions are all on the table waiting to be deliberated by the new cabinet. These issues may impact the dollar, however tangentially.  For instance, the dollar weakens this week (Jan 6) when rumours of lower tariffs swirled in the FX market.

What is more, the economic outlook of the US is far stronger than anticipated. Listen to the recent speech by Lisa Cook, a serving member of the Federal Reserve Board, on January 6:

I continue to view the risks to achieving the two sides of the Federal Reserve’s dual mandate of price stability and maximum employment as being roughly in balance……the 100 basis points of rate cuts since September have notably reduced the restrictiveness of monetary policy. All along, I envisioned moving more quickly in the early stages of our easing campaign and then easing more gradually as the policy rate came closer to neutral…….since September, the labor market has been somewhat more resilient, while inflation has been stickier than I assumed at that time. Thus, I think we can afford to proceed more cautiously with further cuts.

In other words, all the big rate cuts envisioned by investors a year ago have been thrown out of the window.

In light of the robustness of the American economy, no wonder US interest rates are climbing steeply. Rates are definitely staying ‘higher for longer’.

In the past six weeks, the 10-year US Treasury Yield surged to 4.6 percent, a level which is only a short distance from the 2023 peak of 5 percent. If we view this trend via bond prices (bond price and yield move inversely), the breakdown of US Treasury prices is very worrying indeed.

The iShares Treasury Bond ETF (ticker:TLT) tentatively slipped to new 52-week lows this week. The correction from September now exceeds 13 points (see below). Many bondholders could be in the red. If further inflationary economic data appears, another bond rout is quite possible.

In sum, the above discussions points towards a firm Dollar that is backed by a strong American economy and high bond yields. To get GBPUSD back to, say 1.350, requires perhaps a marked reversal of these macro tidings. Not easy, given current set of factors.

However, expectations of GBP are low – and possibly baked in current low prices. This, in turn, means that better-than-expected economic data may set GBPUSD up for a tidy rally since the sentiment is so negative.

In a nutshell, to predict where GBPUSD will be at the end of this quarter is near impossible since there are so many paths it could take. Hence I will just opine that the rate will probable trade at a level not too far from where it is now.

What is the GBPUSD forecast in weeks, months, and years?

GBPUSD’s weak trend is being extrapolated by the market. Many brokers are expecting a further dip in the weeks ahead. Who dares to fight an entrenched trend? Very few.

If we look three months ahead, the interesting part of the predictions is the bifurcation of the predictions. Some anticipate a further decline (1.200-1.21) while a few expect a bounce (to 1.260-1.270). The range of the forecast tells you how volatile the market is at the moment.

Therefore, we just have to see where the market is willing to take the GBPUSD rate. Watch for a tussle between supply and demand around 1.250.

Source: fxstreet.com (Jan 2025)