Pound Holds Gains Amid BoE Cautious Stance. Forecast as of 02.10.2025
If the Fed has changed its views on inflation and unemployment, why shouldn’t the Bank of England do the same? Members of the Monetary Policy Committee (MPC) are discussing the temporary nature of consumer price growth. Coupled with budget problems, this stance should have hurt the pound. However, the GBPUSD pair is rising. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The market is underestimating the scale of the REPO rate cut.
- The UK pays more on bonds than other G7 countries.
- The Bank of England is changing its views following the Fed.
- Long trades on the GBPUSD pair can be increased on a breakout of 1.3515.
Weekly Fundamental Forecast for Pound Sterling
The British pound is the most unpredictable currency in the foreign exchange market. It strengthens when everyone loses confidence in it. When everyone starts expressing optimism about it, its value falls. Amundi, Europe’s largest asset manager, predicts a bleak future for the pound. They believe investors are underestimating the extent of the Bank of England’s monetary expansion. In addition, the budget-induced turmoil in the debt markets will force the BoE to resume quantitative easing. All these factors should have dragged the GBPUSD rate down, but the pair is rising.
There is some truth to the idea that the Bank of England may turn out to be more dovish than investors expect. According to MPC member Swati Dhingra, the effects of the turmoil in Europe, which has caused the UK to experience the highest inflation among G7 countries, will soon disappear. Therefore, the BoE should not hesitate to lower the repo rate.
Inflation in UK, EU, and US
Source: Bloomberg.
Deputy Governor Sarah Breeden sees no evidence that the disinflation process has gone off the rails. While consumer prices have accelerated to 3.8%, they may rise to 4% by the end of the year. However, the downward trend in the CPI will resume in 2026. Dave Ramsden believes that the Bank of England has room to ease monetary policy further.
Meanwhile, the BoE still considers the Fed to be the leader among central banks. The Fed’s change in outlook — focusing on rescuing the cooling labor market rather than controlling inflation — could influence the Bank of England, meaning that unemployment is becoming more important than consumer price growth.
Despite experiencing the fastest growth among G7 countries in the first quarter, the British economy is facing severe headwinds. According to Bloomberg, the UK is heading for a deficit of £200 billion, equivalent to 7% of GDP. This is significantly higher than what many economists consider sustainable. London pays more for loans than anyone else in the G7. If the repo rate is not lowered, the problem will only worsen.
CNY and GBP Volumes as Share of Global Trading
Source: Bloomberg.
Notably, budget difficulties and the expectation of a reduced repo rate are unlikely to be the main factors that force investors to turn away from the pound. However, its share of daily transaction volume on Forex has fallen from 12.9% to 10.2% over the past three years. The Chinese yuan, currently in fifth place, is approaching the pound sterling.
Weekly GBPUSD Trading Plan
Despite the GBPUSD pair’s recent gains, the pound is still vulnerable, so a quick recovery is unlikely. The pair is expected to consolidate in the range of 1.33–1.36. Long trades formed on the decline to the lower boundary can be kept open. At the same time, long positions can be increased if the pair breaks through the resistance level of 1.3515.
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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