Pound-to-Dollar Hits 1.30, Predictably Reverses

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Pound Sterling has achieved a key milestone in its rally against the Dollar before retreating.

The Pound-to-Dollar exchange rate reached 1.30 on Tuesday but soon ran into a wall of selling.

"The $1.30 handle is a crucial psychological level, which, if surpassed, could trigger a significant upward movement as it did in August last year," says George Vessey, FX strategist at Convera.

The Pound rose to $1.3433 last September before falling nearly 10 per cent in early 2025 as the U.S. economic 'exceptionalism' trade kicked into gear and spurred a significant rally in USD.

Key technical levels tend to trigger selling interest as market participants lock in value.

For instance, I heard from one reader on Monday who has over a million pounds worth of dollars to buy. He wants 1.30, which inevitably means he must wait for the spot market to hit approximately 1.3030 in order to cover the fees and spreads charged by FX payment firms and banks.

However, he was up against more astute market players who the textbook. They are more likely to start selling as the market approaches and moves through the early 1.30s, which leaves the more ambitious participants out of pocket.

This is why those looking to buy dollars should consider setting up automatic orders at various levels around 1.30, or whatever their target might be.

Market participants will also look to sell the Pound as they will have one wary eye on Thursday's Bank of England decision, which recent history shows tends to weigh on Sterling.

Although selling interest picked up at just above 1.30, technical analysts think a breach of resistance still remains likely.

According to Nick Kennedy, FX strategist at Lloyds Bank, GBP/USD currently aims for GBP/USD 1.3044, which blocks the 1.3108/42 band.

"Through there 1.3434 would come back into play, though that’s probably not something to think about nearer-term," he adds.

Image courtesy of Lloyds Bank.

Dollar Rebound Predicted

According to a consensus of investment bank analysts, GBP/USD is now trading at overbought levels and the prospect of a meaningful pullback cannot be discounted in the coming weeks.

"We continue to think the stock market will recover as US recession fears fade. We also continue to think that the Fed will remain on hold this year, and stick to its view that there is “no hurry” to cut interest rates again when it meets next week. If we’re right on those two counts, we would expect the dollar to rally significantly from here," says Jonas Goltermann, Deputy Chief Markets Economist at Capital Economics.

The Dollar's 2025 setback comes as investors flip their reaction function to Donald Trump's tariff agenda. Heading into the U.S. inauguration in January, tariffs were considered pro-USD as they are inflationary by nature.

However, investors didn't count on the uncertainty of Trump's ad hoc approach to tariffs and broader legislation, namely the DODGE programme, which has triggered consumer and business uncertainty.

The golden rule in FX is that currency is negative for a currency, even the mighty Greenback.

The prospect of this uncertainty fading will build from April 02 when Trump announces a tranche of tariffs that should take him closer to finalising one of his major policy commitments.

"Our sense remains that a return to US exceptionalism (supporting a stronger dollar) is the most likely path forward," says Goltermann.