Pound Edges Higher as UK Secures Deal with US. Forecast as of 16.05.2025
The Bank of England’s reluctance to act has sent GBPUSD quotes fluctuating significantly. However, central banks are not the primary drivers in the Forex market. The trade agreement between the US and the UK carries significantly more weight than the Bank of England’s verdicts. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Bank of England is in no hurry to lower the repo rate.
- Growing global risk appetite supports the pound.
- The UK managed to secure minimal tariffs.
- Long trades on the GBPUSD pair can be considered with targets at 1.35 and 1.38.
Weekly Fundamental Forecast for Pound Sterling
The Bank of England’s decision to cut the repo rate from 4.5% to 4.25% suits both bulls and bears on the GBPUSD pair. After falling to 1.314 due to two MPC members insisting on a 50 bp cut in borrowing costs, the pair skyrocketed. The reason was the BoE’s reluctance to signal an acceleration of the monetary expansion cycle, which the markets had been counting on.
ING believes that the pound will be able to strengthen against both the US dollar and the euro, as the trade agreement with the US removes uncertainty for UK firms. At the same time, progress in relations with the European Union after the May 19 summit will prolong the rally in the GBPUSD pair. On the contrary, Ballinger Group is not optimistic about the future of the pound sterling, pointing out that it is not central banks that dictate trends on Forex, but trade policy. The markets will soon forget about the BoE’s reluctance to accelerate the cycle of monetary expansion.
In fact, the resilience of the GBPUSD pair is the result of structural weakness in the US dollar and the faster growth of the UK economy. In the first quarter, it expanded by 0.7%, twice as fast as the eurozone, not to mention the US GDP, which has slipped into negative territory. The Bank of England forecasts faster GDP growth than in February and slower inflation.
BoE Forecasts for GDP and Inflation
Source: Bloomberg.
The British pound is a pro-cyclical currency. In April, it declined due to concerns that sweeping US tariffs would hurt global economic growth. However, a review of US trade deals reveals that the situation is not as dire as initially perceived. It is likely that the final tariffs will vary between 8% and 39%. Moreover, the UK secured the lower end of the range, a development that has bolstered the bullish outlook on GBPUSD quotes.
Indeed, if the European Union has to engage in trade negotiations with the United States, the level of trade uncertainty for the United Kingdom has decreased significantly. While business conditions may have deteriorated, they are not a surprise anymore. In addition, the sensitivity of the British pound to global risk appetite is a contributing factor. Increasing risk appetite is pushing GBPUSD quotes upward.
The pair is supported by the US dollar, which was undermined during Donald Trump’s first 100 days in office. Due to the US administration’s policies, non-residents no longer consider investing in US assets a safe prospect. They are exploring alternative options, and British securities are viewed as attractive given the country’s faster economic growth and stabilizing political environment.
Weekly GBPUSD Trading Plan
From a strategic standpoint, it is advantageous to purchase the GBPUSD pair on pullbacks, assuming that the pair will hit the targets of 1.35 and 1.38. The breakout of support at 1.326 was only a temporary success. However, it is extremely dangerous to overemphasize short-term sales in conditions of a pronounced upward trend.
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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