The GBP/USD currency pair continues to face significant challenges, with the pound dropping 0.3% against the dollar to $1.2197 on January 20, 2025. This decline follows the unexpected fall in UK retail sales by 0.3% in December, contrary to economists' forecasts of a 0.4% increase. The previous month also saw a downwardly revised growth of only 0.1% in November, indicating ongoing economic struggles in the UK [35190689].
UBS had previously forecasted a dip below 1.20 in the short term for GBP/USD, with a potential recovery to 1.29 by year-end. The US dollar has reached two-year highs, while the pound has hit 14-month lows near 1.2100. Recent economic data has shown UK 10-year yields rising to a 16-year high above 4.90%, reflecting concerns over fiscal tightening due to increasing gilt yields [70662b6e].
Despite these pressures, GBP/USD managed to recover to around 1.2200 after US yields moderated. Analysts at ING expect the pair to remain under pressure, predicting an end-year forecast of 1.19. The economic landscape is further complicated by a spending review announcement scheduled for March 26, 2025, which is anticipated to lead to spending cuts in the UK [70662b6e].
The Bank of England is now expected to implement 66 basis points in rate cuts during 2025, compared to 42 basis points anticipated from the US Federal Reserve. This shift in monetary policy is likely to further impact the pound's strength. Michael Brown from Pepperstone noted the UK's stagnating economy and persistent price pressures as significant challenges [35190689]. Additionally, HSBC has highlighted the vulnerability of the GBP amid these economic uncertainties. The influence of former President Trump's economic policies is expected to bolster the dollar, creating a challenging environment for the pound [70662b6e].
As traders navigate these developments, Morgan Stanley anticipates an eventual decline of the dollar, suggesting that 2025 may present a story of two halves for currency markets. The current resistance for GBP/USD is noted at 1.2400, with support at 1.2300, indicating potential for further declines if economic conditions do not improve [70662b6e].