The Pound Sterling is making gains against major currencies as investors seem unfazed by the slightly heightened dovish expectations for the Bank of England (BoE) in 2025.
Revised figures for the UK’s Q3 GDP reveal that the economy was stagnant. Meanwhile, recent statements from Fed officials suggest a diminished eagerness to cut interest rates next year, given the uncertainty tied to President-elect Donald Trump’s policies.
On Monday, the Pound Sterling (GBP) climbs against its key counterparts. Despite an uptick in dovish bets regarding the BoE’s actions in the coming year, traders are largely overlooking it. After the BoE’s policy announcement on Thursday, market expectations for rate cuts in 2025 have risen from 46 basis points (bps) to 53 bps. This increase was spurred when three out of nine Monetary Policy Committee (MPC) members proposed a 25-bps rate reduction, more than what the market had initially projected. The resulting 6-3 vote split was seen as a sign of growing dovish sentiment for the next year, which initially weighed on the pound.
However, speculation about the number of rate cuts by the BoE is on par with that of the Federal Reserve (Fed) and lower than what’s expected from the European Central Bank (ECB). This similarity makes the Pound Sterling an appealing long-term investment option. In contrast, Deutsche Bank analysts forecast that the BoE will implement four rate cuts next year, with one in the first half and three in the second.
Monday also saw downward revisions to the UK’s Q3 growth rate, sparking concerns about the nation’s economic outlook. The Office for National Statistics (ONS) reported that the economy was flat in the third quarter, a comedown from the 0.4% growth in Q2 and less than the previously estimated 0.1% expansion.
Daily Market Movers: Pound Sterling’s Trading Trajectory
In the Monday London session, the Pound Sterling hovers around 1.2580 against the US Dollar (USD). Despite a minor rebound in the US Dollar, the GBP/USD pair inches upwards. The US Dollar Index (DXY), which measures the dollar’s value against six major currencies, climbs back to near 108.00.
The US dollar is attracting buyers due to positive long-term outlooks, as the Fed is expected to adopt a measured policy-easing approach next year. In the latest dot plot, the Fed signaled just two rate cuts in 2025, down from the four cuts projected in September. For January’s policy meeting, according to the CME FedWatch tool, traders anticipate that the central bank will keep interest rates unchanged within the 4.25% – 4.50% range.
Fed officials’ recent remarks indicate that persistent inflation, a stronger-than-expected labor market, and uncertainty regarding Trump’s economic policies have led them to plan fewer rate cuts for 2025. Cleveland Fed President Beth Hammack, who dissented in last Wednesday’s rate-cut decision, stated on Friday that she’d prefer to hold policy steady until there’s more proof of inflation returning to the 2% target.
With holidays on Wednesday and Thursday this week (Christmas Day and Boxing Day), thin trading volumes in the forex market may lead to more subdued price movements for currency pairs. Investors will be eyeing the US November Durable Goods Orders data, due out on Tuesday, which is expected to show a 0.4% decline after a 0.3% expansion in October.
Technical Analysis: Pound Sterling’s Consolidation with Bearish Hints
The Pound Sterling has been broadly consolidating against the US dollar following a clear break below the upward-sloping trendline at around 1.2600, drawn from the October 2023 low of 1.2035.
A “death cross” formation, where the 50-day and 200-day Exponential Moving Averages (EMAs) cross near 1.2790, points to a strong bearish tendency in the long term.
The 14-day Relative Strength Index (RSI) has rebounded above 40.00. If this oscillator fails to stay above this level, a new downward momentum could be initiated. Looking at support levels, the pair is likely to find a buffer near the April 22 low of 1.2300. On the upside, the December 17 high at 1.2730 will act as a key resistance point.
Related topics:
Pound Sterling Tumbles Post-BoE’s Steady Interest Rate Decision
Pound Sterling’s Consolidation Amid US Inflation Focus and BoE Expectations
