The Pound Sterling is on the rise Friday, even as investors anticipate the Bank of England (BoE) to follow a less gradual policy easing cycle in 2025 than previously thought. Traders expect at least two 25 – basis – point interest rate cuts by the BoE next year.
The Pound Sterling (GBP) has been gaining ground against its major peers. The latest BoE policy announcement in mid – December showed a dovish trend, with the nine – member Monetary Policy Committee (MPC) voting 6 – 3 to keep interest rates on hold, a larger split than the 8 – 1 economists had predicted.
This split has led to an increase in dovish bets for 2025 among traders. The market currently anticipates a 53 – basis – point (bps) reduction in interest rates next year, up from 46 bps after the December 19 BoE policy announcement. This implies at least two meetings where the key borrowing rate will be cut by 25 bps.
BoE Governor Andrew Bailey has refrained from guiding a specific policy easing path for 2025, citing heightened uncertainty in the UK economy.
Daily digest market movers
The Pound Sterling is trading around 1.2550 against the US Dollar (USD) on Friday. The GBP/USD pair is rising as the US Dollar weakens slightly, with the US Dollar Index (DXY) edging down to around 108.00. However, the US dollar’s outlook remains firm as investors are confident that the Federal Reserve will make fewer interest rate cuts in 2025.
Fed officials have forecasted that the Federal fund rate will be at 3.9% by the end of 2025, suggesting two interest rate cuts next year, compared to the four cuts projected in September. The Fed has been cautious about interest rate cuts due to positive growth and a stable labor market.
Initial jobless claims for the week ending December 20 dropped to 219K, lower than the expected 224K. This has further buoyed the Pound Sterling.
Inflationary pressures have been stubborn in recent months, renewing concerns about persistent price pressures.
Looking ahead, the major trigger for the US dollar will be the revised estimates for December’s S&P Global and ISM Manufacturing Purchasing Managers’ Index (PMI) data, which will be released next week.
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