GBP/USD exchange rate touches 2025 high in February amid US interest rate cut expectations
The pound dollar exchange rate advanced into the $1.24 mid-range on 3 February amid investor optimism that UK-US trade relations will remain stable following encouraging comments from Donald Trump.
The pound dipped sharply against the dollar on 6 February after the Bank of England’s (BoE) Monetary Policy Committee (MPC) voted for a 25-basis point interest rate cut. Despite being anticipated, the move undermined the UK currency as investors digested the unexpectedly dovish MPC split and the central bank’s downgrade of its 2025 UK growth forecast.
The dollar firmed on 10 February after Trump confirmed a 25% tariff on all steel and aluminium imports and threatened reciprocal tariffs on nations levying duties on US exports. The pound rallied, with markets largely dismissing the impact of the latest tariffs on the UK economy.
The pound dollar rate briefly dipped below $1.24 on 12 February after the US Consumer Price Index (CPI) for January showed inflation climbed to a seven-month high. This prompted investors to trim Federal Reserve rate cut bets, boosting the dollar.
The pound was supported by better-than-expected UK GDP figures on 13 February, causing it to rise above the $1.25 level. The domestic economy expanded 0.1% in the last three months of 2024, rather than contracting 0.1% as expected, assuaging recession concerns and dampening BoE rate cut bets.
The UK currency briefly broke through the $1.26 benchmark the following day. Comments from BoE Chief Economist Huw Pill urged caution on further rate cuts, supporting the pound.
Meanwhile, the dollar was pressured after Trump didn’t immediately impose the new reciprocal tariffs he had promised. This was compounded by the US retail sales print for January, which reported a 0.9% slump in sales growth, missing the 0.1% contraction forecast by a wide margin.
The pound stumbled into the $1.25 range on 19 February despite the UK’s latest CPI revealing that inflation heated up to 3% in January. However, the stronger-than-expected data failed to dampen speculation that the BoE will continue cutting interest rates.
The UK currency rebounded into the $1.26 mid-range the next day amid a risk-on market mood after Trump hinted at a potential trade deal with China, prompting investors to ditch the safe-haven dollar.
Following a choppy spell, the pound touched a new 2025 high against the dollar on 26 February, having edged above the $1.27 benchmark, reaching its highest level since December 18. The upward momentum was fuelled by rising expectations that the Federal Reserve has scope to cut interest rates more than twice in 2025.
The UK currency failed to cling onto its gains as investors piled into the dollar on 27 February after Trump confirmed that delayed tariffs would come into effect the following week. His comments stoked expectations that the trade policy will drive up US inflation and increase the prospect of elevated interest rates, supporting the dollar.
The pound dollar exchange rate ended the month at around $1.257.
GBPUSD: 3-Month Chart
Looking ahead
The Federal Open Market Committee is not expected to alter US interest rates on 19 March amid a robust jobs market and sticky inflation – a hawkish stance that could support the dollar.
Influential data from the US economy in March: ISM Manufacturing PMI (3 March), ADP Employment Change (5 March), ISM Services PMI (5 March), Nonfarm Payrolls (7 March), Consumer Price Index (12 March), Producer Price Index ex Food & Energy (13 March), Michigan Consumer Sentiment Index (14 March), Retail Sales (17 March), S&P Global Services PMI (24 March), S&P Global Manufacturing PMI (24 March), GDP (27 March), Core Personal Consumption Expenditures – Price Index (28 March).