GBP/USD Outlook for H1 2025 after a 14-Month Low

The GBP/USD pair, popularly called the cable, declined 1% through 2024. Most of the decline could be attributed to the pound sterling’s depreciation against the USD after Donald Trump’s victory in the US presidential election. The forex pair shed 6.4% in the fourth quarter of the year alone. However, the GBP outperformed all other major currencies in 2024. Yet, the turn of the year failed to turn investors bullish on the GBP/USD. Within the first 15 days of 2025, the pound sterling plummeted to $1.2305, the lowest since November 2023. Now that the Labour government’s budget is out, the factors affecting the cable have multiplied.

GBP/USD Expectations for H1 2025

As on February 5, 2025, the positive correlation between gilt yields and the GBP is broken. This is primarily because of the uncertainties around the global trade and geopolitical environments. This has added to the pressure on the pound sterling, which is being weighed down by interest rate cuts. Here’s what to expect from the forex pair in H1 2025.

Interest Rate Decisions

In January 2025, the Bank of England (BoE) left interest rates unchanged. However, a 6-3 vote split indicated dovish momentum building up, which means traders can expect at least one more cut in Q1. Overall, the BoE is expected to lower interest rates by 50 to 75 basis points in 2025, despite inflation being expected to persist at around 2.4%. This could put downward pressure on the GBP. 

The US, on the other hand, is expected to introduce only a 25-basis point cut through 2025 (after May). The January FOMC meeting revealed that the Fed may take appropriate action only if necessitated by inflationary pressures. This indicates that the American central bank is likely to adopt a hawkish stance, if needed. While this would exert upward pressure on the USD, the interest rates of both the USD and GBP will fall within the 4.25% to 4.50% range, making the differential very low. Interest rate expectations will continue to create volatility in the forex pair, leading to trading opportunities. Being a safe haven and the currency of a more resilient economy, the USD may remain strong against GBP.

GDP Growth

In 2025, real GDP growth in the UK is predicted at 1.7%, which is more than double the 0.8% in 2024. Combined with monetary easing and wage growth, this means more disposable income in the country. Therefore, consumer spending may grow by 1.8% in 2025. Plus, if the Modern Industrial Strategy is rolled out well in time, it could ramp up progress towards the government’s growth and industrial strategy targets. These could help keep GDP growth robust through H1.

However, the Labour government’s first budget increased employers’ burden by raising minimum wages and National Insurance contributions. As of January 2025, the 6-month MAV PAYE change in employment declined close to 8,000. If employer responsibilities grow further, it could weaken the job market in the UK, suppressing GDP growth. Traders must keep an eye on inflation and consumer spending data to gauge the impact on investor sentiment, and, hence, the cable.

The US is expected to maintain a strong growth momentum in H1 2025, with GDP forecasted to expand at 2.3% through the year. According to the US Bureau of Labor Statistics (BLS), 256,000 jobs were added in December 2024, and the unemployment rate stood at 4.1%. Core CPI cooled to 3.2% month-on-month, lower than the expected 3.3%. However, the figure is still too high, and given the resilience of the job market, it is too soon for the Fed to consider rate cuts. All in all, GBP/USD may remain under pressure through H1 2025.

Tariff Tiff

The UK does not directly fall within Trump’s tariff targets. However, the magnitude of the indirect impact will depend on the execution of tariffs. With the EU on the radar, the UK could get caught in the crossfire. A general global shift towards a tariff-based trade environment could hurt growth prospects for the UK. Trade uncertainty, combined with a budget less expansionary than expected, may make the GBP/USD continue on a downtrend through the first half of the year.

Looking Beyond

In the second half of the year, the FOMC may remain more active and lower interest rates while US economic growth pauses. Consequently, the GBP could appreciate against the USD. Therefore, GBP/USD might be able to recover from its H1 losses in H2 2025.

Trading the GBP/USD in a Bearish Environment 

The H1 2025 outlook for the GBP/USD is bearish. This does not mean you cannot trade the forex pair. Derivative instruments, such as contracts for difference (CFDs), are a popular way to take advantage of opportunities in downward trending markets. This is done by taking short positions. You can also use CFDs to go long in rising markets. Plus, CFDs can be traded with leverage, expanding your purchasing power. You can get more market exposure with a smaller capital outlay. However, leverage creates a risk of margin calls and amplifies potential losses as much as it does potential profits. Therefore, risk management is non-negotiable. Setting stop loss and take profit limits is crucial to minimising losses in case the market moves against your speculation.

To Sum Up

• The GBP/USD remained under pressure through January 2025.
• The BoE is expected to lower interest rates, although uncertainties around economic growth in the UK remain.
• The Fed may keep interest rates steady while the US economy maintains its strength.
• The GBP/USD may continue trending downwards through H1 2025.
• Traders can go short on the forex pair to take advantage of the downtrend.
• Risk management is paramount when trading CFDs.

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