Last year, the pound failed to outperform its G10 counterparts due to the impact of Donald Trump’s policies. In 2025, the UK currency is losing ground due to Britain’s fiscal problems. What are the implications of this for the GBPUSD pair? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The UK needs to patch up a £30 billion hole in its budget.
- S&P Global Ratings is considering a downgrade of the UK’s credit rating.
- The Bank of England is reluctant to cut rates.
- Long positions can be considered if the GBPUSD pair surges above 1.3625 and 1.3545.
Weekly Fundamental Forecast for Pound Sterling
Will the British pound fall back into the same trap? For the second consecutive year, the GBPUSD pair is off to a strong start, but concerns persist that it may close with a weaker position. In 2024, the pound sterling was among the strongest currencies in the G10 basket for a significant period. However, Donald Trump’s victory in the US presidential election allowed the US dollar to overtake the British currency. In 2025, history may repeat itself. At present, the UK currency’s weakness may be attributable to fiscal chaos reigning in the country.
The British pound posted gains in early 2025 due to 0.7% economic growth in the first quarter, the Bank of England’s measured approach, and the completion of a trade deal with the US. However, the story of Rachel Reeves’ possible dismissal as finance minister, her tears in parliament, and the untimely support of Prime Minister Keir Starmer sent GBPUSD quotes to their two-week lows.
The Chancellor of the Exchequer must address a £30 billion budget shortfall in accordance with current fiscal regulations, and her options are limited. Public services are already operating under significant pressure. However, reducing investment or raising taxes could hinder GDP growth, which is already facing challenges at a time when the UK and the global economy are experiencing difficulties.
As a result, S&P Global Ratings has indicated that the country’s fiscal conditions are considered vulnerable, which could lead to a downgrade in the credit rating. The rating is higher for the UK compared to Moody’s and Fitch Ratings assessments, which have not yet commented on the deterioration of the country’s economic outlook.
UK 10-Year Gilt Yield and G7 10-Year Bond Yield Average
Source: Bloomberg.
Fiscal shocks have led to sell-offs in UK Gilts, whose yields are higher than those of the G7 countries. The UK is facing strong headwinds in managing its debt, and the Bank of England’s hesitation to lower interest rates is contributing to market uncertainty.
While MPC member Alan Taylor advocates for proactive measures to ease monetary policy and support economic growth, BoE Governor Andrew Bailey is concerned about the potential for accelerating inflation. In its Financial Stability Report, the BoE noted that increased investor interest in hedging currency risks would lead to a weakening of the US dollar against major currencies.
As a result, import prices in Britain are expected to rise, spurring inflation, and it will be challenging to reduce the repo rate in such conditions. The UK regulator has adopted a cautious stance, which has made markets frown. Notably, the markets are waiting for monetary policy expansion at any cost.
Weekly GBPUSD Trading Plan
Rachel Reeves is likely to perform well despite the challenges she faces. Fiscal chaos will unlikely push the GBPUSD pair as low as the 2024 US presidential election did. The upward trend for the pound against the US dollar remains intact. Therefore, a breakout of the resistance level of 1.3625 and 1.3645 would create an opportunity to purchase the GBPUSD pair.
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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