Pound to Dollar Exchange Rate Upside Limited as Federal Reserve Eyes Fewer Cuts in 2025

Above: File image of Jerome Powell. Image: Federal Reserve.


The Dollar will be supported by a Federal Reserve that could cut interest rates just once in 2025.

Both the Bank of England and the Federal Reserve cut interest rates by 25 basis points on Thursday, with investors still preoccupied by an unexpectedly decisive U.S. election win by Donald Trump and his Republican Party.

"The USD gave back part of the rally that took place following Mr. Trump’s victory in the US presidential election," says Roberto Mialich, a currency strategist at UniCredit Bank.

The election might overshadow the central bank decisions, but the shift in Federal Reserve policy that is underway will be a big story in the months to come.

The Fed cut the federal funds rate by 25 basis points to 4.50-4.75% and Chair Jerome Powell was noncommittal on further rate cuts.

"There is increased speculation as to whether the Fed might opt to slow the pace of easing from here, with Fed Chair Powell possibly laying the groundwork for this in the future," says Ellie Henderson, an analyst at Investec.



The Pound to Dollar exchange rate came under pressure following the U.S. election result but recovered some of those losses through Thursday. It rose to a high of 1.3009 after the Bank of England cut Bank Rate by 25 basis points to 4.75%.

"The greenback was not helped by hawkish remarks by BoE Governor Andrew Bailey either, as he warned that the bank might not cut rates too quickly or too much, which helped GBP-USD re-approach the 1.30 area," says Mialich.

Analysts expect the Bank of England to continue cutting interest rates at a quarterly pace, meaning the next cut will likely occur in the first quarter of 2025 (at the February meeting).

However, the Bank is still on course to cut faster than its U.S. counterpart. Although economists widely expect another Fed cut in December, fewer cuts are anticipated for 2025.

"So long as the labour market continues to show signs of gradual cooling and inflation remains contained, we think the Fed will probably cut by 25bp in December," says Mialich.


GBP/USD investment bank consensus forecasts: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/USD. Please request a copy here.


The Dollar strengthened through October as investors braced for a Trump victory but also because U.S. economic data showed the economy remains strong.

This allowed markets to materially lower expectations for further interest rate reductions for 2025, which is fundamentally supportive of the U.S. Dollar.

Economists at Nomura forecast that the Fed will make another rate cut in December, followed by just one in 2025 and two in 2026.

"This is a somewhat more hawkish scenario than what the federal funds futures market is currently pricing in, and if it comes to pass, we could see some unwinding of some of the forces that have pushed equities up since July 2024," says Tomochika Kitaoka, a strategist at Nomura.

Foreign exchange analysts we follow say the Dollar might remain supported into year-end as the 'Trump trade' continues to play out. This involves expectations for higher inflation rates in the U.S. on account of Trump's desire to impose import tariffs and cut taxes.

The Fed will meet these policies by keeping rates on hold for an extended period.

"A less dovish Fed stance that could burnish the rate appeal of the USD," says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.

The prospect of further USD appreciation and GBP/USD downside remains high in the coming weeks.

"In all, we expect the USD to remain supported in the early stages of Trump’s presidency but to lose ground in H225 as the US relative growth advantage is gradually eroded and Fed cuts mount while Trump’s weak-
USD doctrine persists," adds Marinov.

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