Pound Sterling rises as markets broadly expect BoE to leave interest rates unchanged
- The Pound Sterling rises against its peers on expectations that the BoE will hold interest rates steady on Thursday.
- BoE officials Swati Dhingra and Alan Taylor could vote in favor of a 25 bps rate cut to 3.5%.
- Investors await the US ADP Employment Change and the ISM Services PMI data for January.
The Pound Sterling (GBP) trades higher against its major currency peers on Wednesday as investors await the Bank of England’s monetary policy announcement on Thursday. The British currency gains on expectations that the BoE will leave interest rates unchanged at 3.75% in its first policy meeting of 2026.
Market participants anticipate the United Kingdom (UK) central bank to hold borrowing rates steady after slashing them by 25 basis points (bps) in December, while guiding that the monetary policy will remain on a “gradual downward path". Out of the nine-member-led-Monetary Policy Committee (MPC), Swati Dhingra and Alan Taylor are expected to vote for an interest rate cut.
In mid-January, Taylor said in a summit in Singapore that he sees inflation returning to the central bank’s 2% target in “mid-2026, more quickly than having to wait until 2027”, and projected that interest rates could “normalise to the neutral (level) sooner rather than later”.
In the December policy meeting, officials also expressed confidence that “inflation will come closer to 2%” in the second quarter of 2026.
Alongside the BoE’s interest rate decision, investors will focus on the quarterly Monetary Policy report that will show inflation expectations over the next two years and the current state of the economy.
Daily Digest Market movers: Pound Sterling ticks up against US Dollar ahead of US data
- The Pound Sterling is up 0.2% to near 1.3725 against the US Dollar (USD), and flat around 0.8630 against the Euro (EUR) during European trading hours on Wednesday. The GBP/USD pair edges higher as the US Dollar trades subdued ahead of the release of the United States (US) ADP Employment Change and the ISM Services Purchasing Managers’ Index (PMI) data for January during the North American trading session.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades cautiously near 97.40.
- Investors will closely monitor the private-sector employment and the Services PMI data to get fresh cues on the state of the US economy and labor market, key factors for the Fed when setting interest rates. Economists expect US private employers to have added 48K workers, higher than 41K in December. The ISM Services PMI is expected to come in lower at 53.5 from the prior reading of 54.4, indicating that the service sector activity advanced again but at a moderate pace.
- Upbeat US private job market and ISM Services PMI data would force traders to pare bets supporting interest rate cuts by the Fed in the near term. On the contrary, soft numbers would boost these odds.
- According to the CME FedWatch tool, the Fed is expected to deliver its first interest rate cut in the June policy meeting after leaving them unchanged in the range of 3.50%-3.75% in March and April.
- Meanwhile, the US House has approved the funding to end the partial government shutdown on Tuesday. However, the US Nonfarm Payrolls (NFP) data for January will not be published on Friday, as per the latest reports.
Technical Analysis: GBP/USD resumes upside journey after correcting to near 1.3620
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GBP/USD trades higher at around 1.3712 at the time of writing. The pair holds above the rising 20-day Exponential Moving Average (EMA) at 1.3605, keeping the short-term trend pointed higher. The 20-day EMA has firmed over recent sessions, signaling increasing upside pressure.
The 14-day Relative Strength Index (RSI) at 62 (positive) confirms bullish momentum without overbought conditions.
Maintaining daily closes above the 20-day EMA at 1.3605 would preserve the upward bias and encourage follow-through towards reclaiming the four-year high of 1.3866. However, a decisive close back below that gauge would soften the tone and invite a deeper retracement towards the psychological level of 1.3500.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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