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Where next for the pound as we head into a momentous end to 2025?
Is the UK stuck in a “doom loop”, where inflation becomes entrenched and productivity growth is anaemic at best?
That is the kind of uncomfortable question being banded around by economists and politicians. It sets the scene for a make-or-break autumn budget, one in which Chancellor Rachel Reeves will be forced to impose tax hikes to make up for the fiscal shortfall (variously estimated to be £20 billion, £30 billion, or perhaps even £50 billion).
As we know, political and economic events can have a drastic impact on the pound’s standing. And even a small move of one cent, let’s say, can translate to millions of pounds on you balance sheet. This quarter, bank predictions for where sterling will move have diverged sharply. But where will sterling end 2025, and how will this affect your cashflow and gross profits?
GBP/USD
Having begun July at a three-year high, sterling never really got going against the US dollar over the summer months. Instead, it saw its earlier gains washed away by the tides of economic stagnation and spending jitters.
Most forecasts we highlighted in our last report predicted GBP/USD would near or even breach the 1.4 mark. Instead, the pound was pushed down toward the lower end of the band and found generating and sustaining upward momentum a challenge. Both currencies are facing questions around their long-term viability, but thanks primarily to economic outperformance, the US dollar had a better summer than expected.
GBP/USD: Q3 2025
GBP/EUR
A strong quarter for the euro has limited sterling’s upward mobility. Across the last three months, GBP/EUR puttered along between 1.14-1.16 – within the lower range predicted in our last forecast but nowhere near the upper limits some of the more bullish banks expected.
If anything, the trends dragging on the pound have strengthened rather than dissipated. The Bank of England cut interest rates just as the European Central Bank (ECB) considered raising its own. Aside from the crisis in French parliament, things are looking bright for the euro headed into the final stretch of 2025.
GBP/EUR: Q3 2025
EUR/USD
The euro covered the full range of the 1.14-1.19 predicted in our last report. Progress has been steady for the single currency, if marked by its inability to burst through the glass ceiling.
Talk of a “global euro moment” is gathering momentum. As investors continue to shy away from the US dollar, the euro is benefitting from a groundswell of safe-haven interest and is now second only to gold among defensive assets, according to HSBC. Politicians, central bankers, and investors see great merit in this status. Getting there will be easier said than done.
EUR/USD: Q3 2025
What this means for your business
There’s no escaping the fact that this quarter is more significant than most for the UK economy and the many businesses that constitute its more dynamic elements.
It’s not just the policy and tax changes that might be implemented that contribute to the risk. For the many thousands of businesses exposed to the waxing and waning of exchange rates, the biggest risk is that momentous changes lead to a realignment within markets. It has truly never been more important to understand how your business will be affected, as well as why these trends make risk management crucial.
For the full breakdown of currency projections up to the end of the year, as well as for detailed analysis of these trends and much more, download our October-December Quarterly Forecast.
Register with Smart Currency Business today to protect your profit margins and cashflow in these uncertain times.
