GBP/USD flat lines near 1.3250 amid UK budget relief
- GBP/USD trades flat around 1.3245 in Monday’s Asian session.
- UK budget relief could support the Pound Sterling.
- Fed cut odds rise to 87% on dovish Fed remarks and uncertainty.
The GBP/USD pair holds steady near 1.3245 during the Asian session on Monday as traders continue to digest the UK’s Autumn Budget. The potential downside for the major pair might be limited due to the rising expectations of a Federal Reserve (Fed) interest rate cut in the December meeting. The US November ISM Manufacturing Purchasing Managers Index (PMI) report is due later on Monday.
UK Chancellor Rachel Reeves revealed the UK's Autumn Budget last week, which includes tax hikes and changes to business rates, benefits, and pensions.The Office for Budget Responsibility (OBR) revised its 2025 growth forecast for the UK upward, from 1.0% to 1.5% following the budget announcement. Nonetheless, OBR lowered its growth estimates to 1.4% in 2026 and 1.5% in all of the following four years. The 2025 UK Autumn Budget could lead to a modest relief rally for the Pound Sterling (GBP) against the US Dollar (USD) in the near term.
Traders increase their bets of a Fed rate reduction amid the uncertainty and dovish comments from Fed officials, which drag the Greenback lower and act as a headwind for the pair. US Fed funds futures are pricing an implied 87% chance of a 25 basis points (bps) rate cut at the Federal Reserve's (Fed) December policy meeting, compared to a 71% odds a week earlier, according to the CME FedWatch tool.
Last week, Fed Governor Christopher Waller said that available data indicate that the labor market remains weak enough to warrant another quarter-point cut at the December meeting. Meanwhile, San Francisco Fed President Mary Daly noted that she supports lowering the interest rate next month because she saw a sudden deterioration in the job market, as both are more likely and harder to manage than an inflation flare-up.
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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