**Pound to US Dollar Forecast: GBP/USD Eyes 1.35 as ISM PMI Report Approaches**
*By Lee I. Riley — Originally published at exchangerates.org.uk*
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The Pound Sterling (GBP) has displayed renewed strength against the US Dollar (USD) in 2025, with bullish market sentiment supported by changes in UK economic outlook and looming key US economic data. As the GBP/USD nears the 1.35 handle, investors are watching the upcoming ISM Purchasing Managers’ Index (PMI) report closely for signals that could affect the currency pair in the short and medium term.
This article offers a comprehensive analysis of the current GBP/USD exchange rate dynamics, details the main factors driving the pair, previews the implications of the approaching ISM PMI release, and assesses the longer-term outlook in the context of evolving monetary policy and economic trends for both the UK and the US.
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**Current State of the GBP/USD Pair**
In recent months, the pound to dollar rate has demonstrated resilience, advancing towards the 1.35 level as economic data from the UK has consistently beaten expectations and sentiment around the country’s growth prospects has seen modest improvement. Meanwhile, the US dollar has softened, mainly as traders recalibrate interest rate expectations in light of cooling inflation and somewhat mixed economic indicators.
**Key Recent Developments:**
– GBP/USD has climbed steadily from early-year lows below 1.32, building on optimism surrounding the UK’s growth outlook.
– The US dollar index (DXY) has retreated from its 2024 highs as investors shift their focus from safe-haven flows to relative growth and yield differentials.
– Trading momentum has been sustained by speculation that the Federal Reserve may begin easing monetary policy sooner than previously expected, in contrast to the Bank of England, whose policymakers have signaled patience on rate cuts.
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**Factors Driving the Pound Higher Against the Dollar**
Multiple factors have coalesced to drive the recent rally in the British pound, including:
**1. Improving UK Economic Data**
– UK GDP figures have outperformed expectations in several recent releases, indicating robust activity in both the services and manufacturing sectors.
– Retail sales have rebounded, contributing to positive sentiment among consumers and investors.
– Wage growth has exceeded inflation rates, strengthening household purchasing power and cementing confidence in a soft landing for the UK economy.
**2. Shifting Bank of England Stances**
– The Bank of England (BoE) has adopted a cautious approach to monetary easing, emphasizing the need for more evidence of declining inflation before considering rate cuts.
– Markets have scaled back bets on an imminent BoE rate cut, increasing demand for sterling assets and supporting the exchange rate.
**3. Easing Political Uncertainty**
– Periods of political turbulence often weigh on the pound, but the resolution of recent governmental issues and clarity around fiscal policy have removed a key tail risk for sterling traders.
– Positive engagement between the UK and its trade partners has further soothed investor concerns, reinforcing a more constructive narrative for the pound.
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**US Dollar Weakness: A Boon for Sterling**
On the other side of the currency pair, the US dollar has lost momentum, impacted by several interrelated factors:
**1. Diminished Safe-Haven Demand**
– Geopolitical risks, which had been supportive of the dollar earlier, have de-escalated, prompting investors to rebalance portfolios and favor risk-sensitive currencies like the pound.
**2. Softer US Economic Indicators**
– Recent US economic data, while still generally positive, has shown signs of cooling across sectors such as manufacturing, services, and housing.
– Lower inflation prints have reduced the urgency for the Federal Reserve to maintain a restrictive policy stance, leading the market to anticipate policy easing later this year.
**3. Repricing of Fed Interest Rate Path**
– The Federal Reserve’s dot plot and statements from policymakers have revealed growing openness to interest rate cuts in late 2025, in contrast to the
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