GBP/USD Price Forecast: Rally Pauses Below 1.3700

During Tuesday's European trading session, the British pound edged higher against the US dollar, trading near 1.3640, but its rally paused below the 1.3700 level. Notably, despite a slight rise in the US dollar index, the pound showed relative strength, indicating growing momentum of its own.

**Inflation Data as Key Short-Term Catalyst**

Markets are focusing on the upcoming UK CPI data. If inflation comes in higher than expected, it could reinforce expectations of interest rate hikes by the Bank of England, thereby boosting the pound, especially if services inflation also accelerates. According to market analysis, a cooling in the data could weaken the case for a hawkish policy stance, putting pressure on the pound. On the technical front, $1.36 is the first near-term resistance level, followed by around $1.37; downside support sits at $1.35, with the $1.33 to $1.34 range further below.

**Central Bank Policy Expectations in Play**

The pound has recently benefited from an interest rate differential advantage, namely the expected gap between UK and US borrowing costs. Weak US employment and moderate inflation have cooled market expectations for Federal Reserve rate hikes, providing support for the pound. However, this advantage could shift quickly. The Fed's meeting minutes are due shortly after the UK inflation data release, and market participants believe that if the minutes lean dovish, combined with elevated UK inflation, it could further push the pound higher; conversely, an opposite combination could see the pound retreat and retest downside support.

**Institutional Forecasts Point to Wide-Range Fluctuations**

Over the medium to long term, institutions hold divergent forecasts for the pound's trajectory. According to WalletInvestor and LongForecast, the GBP/USD exchange rate is projected to fluctuate between $1.29 and $1.34 in 2025, with a potential rise to $1.33-$1.35. CoinCodex, however, offers a more bearish forecast, suggesting the pair could fall to $1.18. Analysts note that if the Bank of England cuts rates later than the Fed, the pound will gradually strengthen, but monetary policy decisions and the overall performance of the US dollar remain key factors influencing this currency pair.