The Bank of England has to keep the repo rate unchanged due to higher inflation in the UK compared to other countries. However, this factor will affect the GBPUSD pair differently than it did in 2024. What factors are contributing to the strength of the pound? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Inflation in the UK is higher than in Europe.
- The market does not expect the BoE to cut rates in June.
- Donald Trump’s plans are causing concern among non-residents.
- Long trades on the GBPUSD pair can be opened on pullbacks with targets at 1.36 and 1.38.
Weekly Fundamental Forecast for Pound Sterling
The Forex market has determined the weakest link. The US administration’s tariffs, the downgrade of the country’s credit rating by Moody’s, fiscal challenges, and the ongoing dispute between the executive and judicial branches have eroded confidence in the US dollar. In this context, even the British pound, which has not performed strongly in 2025, appears to be a favorable investment. The GBPUSD pair reached the first of two bullish targets at 1.35 and 1.38, subsequently retreating to consolidate.
In 2024, the pound sterling was a frontrunner among the G10 currencies for a significant period. However, it ceded its position to the US dollar due to the Trump trade. At that time, the pound’s strengthening was driven by a robust economy and the Bank of England’s cautious approach. Notably, the British pound has maintained its key drivers, though these are insufficient to secure the top position.
The UK economy demonstrated robust performance at the start of the year, and the acceleration of British inflation from 2.6% to 3.5% in April indicates that, following the reduction of the repo rate in May, the Bank of England may choose to halt the cycle of monetary expansion. According to the derivatives market, there is a 97% likelihood that borrowing costs will remain at 4.25% in June.
Inflation in UK and Other Countries
Source: Bloomberg.
In the context of other economic factors, high interest rates and inflation would typically favor the pound sterling. However, trade wars make currencies benefit only from monetary policy easing. It is widely regarded as a crucial lifeline for a drowning economy. This is the reason why the euro is outperforming the pound in 2025.
Meanwhile, GBPUSD bulls succeed due to the US dollar’s weakness. Donald Trump is seeking financial resources to support his ambitious and costly tax cut initiative. According to estimates by the Congressional Budget Office, the tax provisions would increase the federal deficit by $3.8 trillion. It is crucial to maintain a realistic perspective on the debt and its implications.
Regrettably, the president’s efforts to raise funds have not been successful thus far. The mass layoffs of government employees are dragging the economy down. The International Trade Court has announced the cancellation of tariffs. The prospect of a tax on non-residents whose countries are pursuing policies that discredit the US is causing concern among investors. Foreign investors have accumulated a significant amount of US securities, and Donald Trump’s proposals have led to a resurgence of market fears.
Foreign Holdings of US Assets
Source: Bloomberg.
Trust is a fragile thing—hard to earn, easy to lose. The strategic allocation of investment portfolios has resulted in a shift in capital flows from North America to Europe. According to BNP Paribas, the British pound is benefiting less from this development than the euro due to the already high allocation of British equities and bonds in asset managers’ portfolios.
Weekly GBPUSD Trading Plan
Against this backdrop, long trades on the GBPUSD pair can be initiated on pullbacks with targets at 1.36 and 1.38.
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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