Depu Capital official website: There is a lot of downward pressure on the pound! If it falls to 1.23, it may fall to 1.22.

Entering 2025, the trend of the pound against the dollar (GBP/USD) continues to weaken. Today, the price of the pound against the dollar has fallen to around 1.2440.Depu Capital official websiteThe move was driven by a number of factors, including expected changes in the Bank of England's (BoE) future interest rate policy and the impact of the US economic outlook. In particular, the strong performance of the US dollar once again challenged the support area for the pound and further exacerbated the downward pressure on the pound.

So far, the dollar index (DXY) has set a new high of more than two years, reaching 108.60, and then slightly retreated to 108.70, still maintaining a strong range. The strength of the dollar is mainly due to the market's optimistic expectations for the growth prospects of the US economy, especially in the context of the incoming US administration. Trump's economic policies may promote higher inflation pressures in the United States, thus forcing the Federal Reserve to slow down the pace of interest rate cuts. At the same time, the weakness of the pound is more due to the continued downturn in the UK economy, especially the weak data from the manufacturing and labor markets, which has intensified the market's expectations for further interest rate cuts by the Bank of England.

Market Analysis: Dollar Strength and Downward Pressure on Sterling

From a fundamental perspective, the continued decline of the pound is no accident. After a relatively loose monetary policy in 2024, the market generally expects the Bank of England to adopt a more aggressive interest rate cutting strategy in 2025.

Goldman Sachs analysts expect the Bank of England to cut interest rates four times this year, each by 25 basis points, and the base rate is expected to fall to 3.75% by the end of the year. This expectation puts more downward pressure on the pound, especially against the backdrop of a recovery in market risk appetite and a strong dollar. The decline of the pound against the dollar seems difficult to reverse.

In addition, the UK's economic data is also not optimistic. The latest S & P Global Manufacturing Purchasing Managers Index (PMI) further confirmed the weakness of the manufacturing industry, and the final data fell to 47.0, which was revised down from the initial value of 47.3, indicating that the UK economy has still not been able to effectively restore growth. Inflationary pressures in the service sector in particular remain, and despite the Bank of England's interest rate cut, the structural problems of the UK economy have not been effectively resolved.

In contrast, the performance of the US economy and policy expectations provide strong support for the dollar. Investors widely expect Trump's economic policies after the US presidential election to stimulate US economic growth, particularly potential changes in immigration policies, import tariffs and tax cuts, which could boost the US economic recovery and exacerbate inflationary pressures. This situation will prompt the Federal Reserve to slow down the pace of interest rate cuts, which in turn will support the dollar.

Judging from the Fed's policy expectations, the latest "dot plot" shows that the federal funds rate will rise to 3.9% by the end of 2025, significantly higher than the 3.4% in September. This further validates market expectations for more hawkish policy from the Federal Reserve. Investors are still waiting for the upcoming US labour market data, and any further strong jobs report could weaken the Fed's room to cut interest rates and further strengthen the strength of the dollar.

Technical analysis: The downward trend of the pound is obvious

From a technical perspective, the downward pressure on the pound against the dollar is also obvious. Since the beginning of the year, the pound has broken through the psychological support level of 1.2500. After falling below this level, it is difficult to see a strong rebound signal in the short term. On the daily chart, the pound against the dollar has fallen below the upward trend line since October 2023, and the current position is well below 1.2600, indicating a more obvious bearish trend.

All short- to long-term exponential moving averages (EMAs) show a downtrend, indicating that the trend of the pound is still dominated by bears in the long cycle. The Relative Strength Index (RSI) has also fallen below 40 on the 14th, indicating that the pound is facing strong downside momentum and no signs of reversal in the short term.

Looking further, the near-term support level for GBP/USD is concentrated around 1.2485. If this level is lost, the next target may fall to around 1.2300, the low of April 22. On the rebound side, if GBP can recover to above 1.2500, then the December 17 high of 1.2730 will become an upward resistance.

Future trend outlook: continued pressure

Looking ahead, the downside risks for the pound against the dollar remain significant, especially against the backdrop of a bleak economic outlook for the UK and the possibility of a more aggressive interest rate cut by the Bank of England. The strength of the dollar has not eased either, and the Federal Reserve's policy is expected to continue to support the dollar. The market will be closely watching the upcoming US labor market data. The strong employment report may further weigh on the pound, while the weak employment data may provide some short-term breathing space for the pound, but overall, the pound will still face greater depreciation pressure.

In the short term, the 1.2485 to 1.2300 range could become an important support area for the pound, and a break out of this range could open up further downside space to 1.2200 or even lower. However, given the strength of the dollar and the economic and monetary policy pressures facing the pound, the rebound space is also expected to be limited, especially in the 1.2500 to 1.2600 range, and the pound may face stronger selling pressure.