The current market bias for the USD to GBP exchange rate is bearish.
Key drivers include:
- The Federal Reserve is expected to cut interest rates more aggressively, which could weaken the USD. In contrast, the Bank of England may also lower rates but at a slower pace, showing divergence.
- Global economic growth is improving, benefiting risk sentiment, yet the outlook for the UK suggests potential fiscal challenges that may impact the GBP negatively.
- Inflation in the UK is forecasted to decline, aiming to reach the BoE's target, which may cause further downward pressure on the pound.
In the near term, the USD to GBP rate is expected to remain within a range that reflects recent price stability.
Upside risks may stem from stronger-than-expected US economic performance or unexpected monetary policy changes, while downside risks could arise from intensified fiscal concerns in the UK or ongoing geopolitical tensions that affect trade.