GBP/USD treads water above 1.3150 as Fed rate cuts climb

• GBP/USD holds gains as the US Dollar inches lower amid increasing Fed rate cut bets in December.

• CME FedWatch Tool suggests pricing in 71% odds of a Fed rate cut in December, up from 66% a day ago.

• The Pound Sterling may weaken as rising expectations for BoE rate cuts were driven by softer inflation data.

GBP/USD inches higher after three days of losses, trading around 1.3160 during the Asian hours on Friday. The pair holds ground as the US Dollar (USD) struggles amid improving Federal Reserve (Fed) rate cut bets. According to the CME FedWatch Tool, markets are now pricing in 71% probability of a Fed rate cut in December, up from 66% the previous day.

However, the upside of the GBP/USD pair could be limited as the Greenback may receive support from decreasing odds of further Federal Reserve (Fed) rate cuts. Fed Chair Jerome Powell noted that the central bank is struggling to balance its dual mandate of controlling inflation and supporting employment due to limited data availability amid the ongoing US government shutdown. Powell cautioned that policymakers may have to adopt a wait-and-see approach until official data reporting resumes. He also added that another rate cut in December is far from certain, emphasizing that the outlook remains uncertain.

The US Fed delivered a 25-basis-point rate cut on Wednesday, lowering its benchmark rate to a range of 3.75%–4.0% in a 10–2 vote. The decision was not unanimous, as Fed Governor Stephen Miran supported a larger 50-basis-point cut, while Kansas City Fed President Jeffrey Schmid voted to keep rates unchanged.

The Pound Sterling (GBP) faced challenges as growing expectations for Bank of England (BoE) rate cuts were fueled by softer inflation data, with the BRC reporting further declines in food price inflation. Additionally, concerns mounted that the upcoming November budget could significantly weigh on economic growth.

During Wednesday’s parliamentary session, UK Prime Minister Keir Starmer declined to rule out potential increases in income tax, national insurance, or value-added tax. Meanwhile, reports indicated that the Office for Budget Responsibility (OBR) plans to downgrade the UK’s productivity growth forecast by about 0.3%, a revision that could result in a £20 billion shortfall in public finances.