British pound pulls back from three-year high as rate cut bets and U.S. dollar strength grow

The British pound eased to around $1.338 on Wednesday, extending its decline for a second consecutive session, as the U.S. dollar regained traction ahead of key inflation data. Despite the dip, sterling remains near its highest level since February 2022 and is up nearly 3.8% for April, marking its strongest monthly performance since late 2023.
The dollar’s rebound comes as traders brace for the release of the U.S. Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge. Treasury yields also recovered, with the 2-year and 10-year notes climbing to 3.66% and 4.17%, respectively, after snapping a four-day losing streak. This momentum in yields helped lift the U.S. Dollar Index (DXY) back above 99.00, applying pressure on major currency pairs, including GBP/USD.
Sterling is further weighed down by growing expectations that the Bank of England will cut interest rates at its May policy meeting. While the UK. has been seen as relatively shielded from the impact of U.S. tariffs—given its goods surplus with the U.S.—recent economic signals have tilted dovish. BoE policymaker Megan Greene noted this week that the tariff policy introduced by President Donald Trump may prove disinflationary for the British economy. Meanwhile, softer inflation expectations and tax hikes for employers have added to the cautious tone.
GBP/USD price dynamics (March 2025 - April 2025) Source: TradingView.
Sterling outlook hinges on BoE policy signals
On the economic front, the U.S. JOLTS job openings data for March revealed the lowest reading since September 2024, coming in at 7.19 million and indicating potential cooling in the labor market. While this data may support rate-cut expectations for the Fed, it also reinforces the perception that global economic momentum is softening—fueling short-term demand for the greenback.
Looking ahead, the market’s focus remains firmly on upcoming U.S. labor and inflation data, which could recalibrate expectations for the Fed’s next move. For the pound, the path forward will be shaped by the BoE’s tone and whether inflation pressures warrant delay or acceleration in its policy easing cycle.
As previously discussed, the pound has shown relative strength through April, buoyed by diminished tariff threats and cautious BoE rate projections. However, the pair’s failure to hold above 1.3400 amid broader dollar resilience reflects the ongoing sensitivity to global rate expectations and U.S. macro signals.