**Pound to Dollar Price Forecast: GBP Slides Below 1.32 as Fed Cuts Rates**
*By Tim Clayton, originally published at ExchangeRates.org.uk*
The British Pound (GBP) has faced renewed pressure against the US Dollar (USD), slipping below the 1.32 level amid growing uncertainty over both UK and US central bank policies. The recent decision from the US Federal Reserve to cut its benchmark interest rate has sent ripples through currency markets, with market participants hastily adjusting their expectations for the GBP/USD pair. In this comprehensive analysis, we will examine the key drivers influencing the Pound-Dollar exchange rate, the rationale behind the Fed’s rate cut, the implications for the UK economy, and updated forecasts heading into late 2025 and beyond.
## Overview: The Pound Under Pressure
The Sterling’s slide beneath the psychologically important 1.32 threshold marks a significant shift in sentiment. After a period of relative stability, the Pound has succumbed to a combination of domestic uncertainties and external shocks. The US Dollar’s gains have come not from a position of inherent strength, but rather from a complex interplay of global economic factors and monetary policy divergence.
– **GBP/USD breaches key support level at 1.32**
– **Dollar strength partly driven by safe-haven flows**
– **Fed’s shift in policy triggers sharp reactions across forex markets**
– **Ongoing questions over Bank of England’s policy trajectory**
## The Federal Reserve’s Rate Cut: Motivation and Market Response
The Federal Reserve’s move to reduce its benchmark interest rate was motivated by a combination of softening US economic data and intensifying global headwinds. Concerns over slowing growth, sticky inflation, and tightening financial conditions prompted the Fed to take pre-emptive action in an effort to maintain economic momentum.
### Rationale for the Fed’s Decision
– **Sluggish economic growth:** Recent data had pointed toward a deceleration in US GDP growth, with softer consumer spending figures and a cooling jobs market.
– **Inflation concerns:** While inflation had shown signs of moderating, it remained above the Fed’s target. The decision reflects confidence that a rate cut will not undermine progress toward price stability.
– **Global economic uncertainty:** The ongoing slowdown in China and continued geopolitical risks have contributed to a less benign economic backdrop, increasing downside risks to US economic activity.
– **Financial market volatility:** The Fed noted elevated market volatility and financial conditions tightening faster than anticipated.
### Market Reaction
– **Yield curve adjustment:** US Treasury yields fell sharply, reflecting expectations for further easing.
– **USD reaction:** Initially, the Dollar spiked lower on the rate cut news, but it quickly rebounded as investors recalibrated expectations for other major central banks, particularly the Bank of England.
– **Risk sentiment:** The S&P 500 and other major indices experienced heightened volatility, which in turn fueled safe-haven buying of the US Dollar.
## Bank of England Dilemma: Split Views on Monetary Policy
The Bank of England (BoE) faces a challenging balancing act. On the one hand, inflation remains well above target, compelling central bank officials to keep monetary policy relatively tight. On the other hand, trend growth in the UK economy has been lackluster, and the global backdrop has deteriorated.
### Key BoE Considerations
– **Persistent inflation pressure:** Wage growth remains elevated, and the Consumer Price Index (CPI) has yet to return decisively to target.
– **Weaker growth outlook:** UK GDP growth has continued to underperform, and business investment remains subdued.
– **Public and political pressure:** Calls for relief from high borrowing costs are intensifying, especially given signs that households and small businesses are feeling the strain.
– **Divergence with other central banks:** As the Fed pivots toward easing, the BoE may be forced to follow suit or risk currency depreciation and capital flight.
## Currency Markets: The Dollar’s Reluctant Strength
Despite the conventional wisdom that
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