Pound Surges On BoE-Fed Divergence. Forecast as of 14.08.2025
While the Bank of England ponders the future of the repo rate, the Fed is recalibrating its approach. In June, the FOMC voted to maintain the rate at 4.5%, and a reduction is expected in September. Let’s discuss this topic and make a trading plan for the GBPUSD pair.
The article covers the following subjects:
Major Takeaways
- The Bank of England is divided.
- The Fed may cut rates three times in 2025.
- Monetary policy divergence supports the pound.
- If the GBPUSD pair breaks above 1.36, it will give a buy signal.
Weekly Fundamental Forecast for Pound Sterling
For the first time in the history of the Bank of England, two rounds of voting were required to decide the fate of the repo rate. In the initial round, four MPC members voted for a 25 basis point reduction, while one member advocated for a 50 basis point decrease. The remaining four members opted to keep the rate unchanged. It was only in the second round that the most aggressive dove joined the majority, and the cost of borrowing was reduced to 4%. Against this decision, the GBPUSD exchange rate surged significantly.
The Bank of England’s experience shows how well-qualified economists can collaborate to address complex challenges. Inflation in Britain accelerated from 3.4% to 3.6% in June, while unemployment rose from 4.6% to 4.7% in the three months to May. At the same time, the BoE forecasts that consumer prices will accelerate to 4% before returning to the 2% target in the first half of 2027.
Inflation and Unemployment in US and UK
Source: Bloomberg.
The UK is experiencing a more pronounced stagflation than the US. In contrast, the Fed’s unanimous stance, occurring amidst divisions within the Bank of England, appears out of place. In July, the FOMC voted to maintain the federal funds rate at 4.5%, with a substantial likelihood of a rate cut in September.
Unfulfilled market expectations drove the rise in GBPUSD quotes. It was predicted that only two MPC members would vote in favor of maintaining the repo rate at its current level. Following the August meeting, the likelihood of the BoE maintaining its monetary expansion cycle in November decreased to below 50%. The derivatives market is estimating a 17 basis point reduction in the UK and a 61 basis point reduction in the US. This divergence has enabled the pound to strengthen against the US dollar.
Market Expectations for BOE and Fed Interest Rates
Source: Bloomberg.
In contrast to the Bank of England, the Fed is facing unparalleled political pressure. Donald Trump is demanding a 300–400 basis point cut in the federal funds rate, while Treasury Secretary Scott Bessent is calling for a 150–175 basis point decrease. The US president has criticized Jerome Powell repeatedly and is prepared to take legal action against him for exceeding budgetary limits set for renovating the Fed building. In addition, he wants to appoint a new head of the central bank ahead of schedule to prevent any potential confusion in the financial markets.
The retreat of tariffs and trade wars into the background is bringing investors back to the divergence in monetary policy. In the context of a notable cooling of the US labor market, GBPUSD bulls are thriving. The Fed is expected to cut rates at all three remaining meetings before the end of the year. The question of whether the Bank of England will take even one step down the path of monetary expansion remains an open one.
Weekly GBPUSD Trading Plan
The GBPUSD pair has reached the first of the two targets at 1.348 and 1.36. Bulls are pushing the quotes to the second target. Meanwhile, the pair may rise to 1.39 and 1.4, and a breakout of the resistance level of 1.36 will generate a buy signal.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of GBPUSD in real time mode
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