Predicting a currency rate is a tremendous task, and it requires a deep dive into geopolitics, macroeconomics, and other scenarios, which is generally referred to as fundamental analysis. The global economic landscape in 2025 is heavily defined by geopolitical tensions, divergent monetary policies, and trade policy uncertainty. By analyzing the latest economic data coupled with local and global monetary policies and geopolitical tensions, let’s explore what the Great British Pound might experience in 2025.
Geopolitical fractures
US protectionism reflected in the April 2025 tariff announcements has triggered a global trade rewiring. As a result, many investors and traders started to look at major currencies outside of EUR/USD for earnings. As the US dollar loses its value, GBP, which is the fiat of Great Britain, gains more and more traction. GBP/USD is famous for its high price swings when compared to EUR/USD. The pair can move tens of pips, providing great investing opportunities for retail investors. However, knowing what factors affect its rates in the medium and long-term future is critical to avoid headwinds and achieve profits. GBP to USD rates have been rising steadily since January 2025 as a result of Trump’s tariff announcements. As a result, investors need more and more dollars to buy the pound, which makes it a good buy setup.
Euro area vulnerabilities
As a highly open economy with around 50% of GDP in exports, the EU faces direct hits to corporate revenues and supply chains. The International Monetary Fund (IMF) estimates tariffs could reduce global output and impact trade-dependent regions. Being solid partners with the USA for decades, tariffs are going to have dire consequences for both the USA and the EU, and we can already observe a plummeting US dollar as the market reacts to these extreme measures.
Market volatility spillovers
The European Central Bank (ECB) notes that April 2025 tariff shocks caused financial markets globally to experience shocking sell-offs. This is never a good thing and is typically a main treason of market crashes. These sell-offs tested asset valuations and liquidity buffers to their limits.
Defense spending and security fragmentation
Tariffs are not the only market shock that threatens the established global order of things. Russian aggression in Ukraine and its unwillingness to come to a peace agreement with Ukraine further escalated the whole situation. Trump wants the EU to increase their defense spending, and NATO seems to be thinking more and more seriously about this, announcing that spending for defense will rise to 4.4% of GDP. This is a serious amount and has already boosted defense sector stocks across the EU, but it also shook almost all other parts of the economy. Currency traders have been considering GBP to USD rates to gain from the market momentum. However, GDP showed more resilience and outpaced the dollar, which has been continuing for months now. In all this ordeal, biotech and AI have steadily continued to become emerging flashpoints.
Central banks and economic policies
The Fed (USA) and ECB (EU) are transitioning from restrictive to neutral policies. The ECB has reduced rates to 3.25%, while the Fed fund rates stand at 4.5%. The ECB faces greater risks from more easing than the USA, while the Fed risks moving too slowly to help the US economy. As a result, we get no bullish signals for the USD in the near future. However, a different story can be observed for the EURGBP pair. The pair was in an uptrend, showing that the EUR was stronger than the GBP. However, it could not break the upper resistance levels and started a correction.
UK macroeconomic overview
GDP forecasts for the UK are weaker than earlier projections, which is bearish for the GBP. CPI is expected to peak mid-year at around 3.5%, before gradually retreating to 2% in mid-2026. Rising public debt and weak fiscal credibility have weighed on GBP, but the US dollar remains weaker. As a result of rising gilt yields, UK bonds become more attractive, which can accelerate the GBPUSD uptrend. Overall, GBP could be seriously affected only by further rate cuts unless offset by global safe-haven demand.