GBP/USD gains near 1.3250 amid rising Fed rate cut bets
- GBP/USD rises as the US Dollar softens amid mounting expectations of a Fed rate cut in December.
- Traders expect three more rate cuts by 2026 as Kevin Hassett’s Fed chair prospects reinforce expectations for Trump-favored lower rates.
- Pound Sterling strengthens as traders reassess Chancellor Rachel Reeves’ budget and her renewed commitment to fiscal discipline.
GBP/USD continues its winning streak for the seventh successive session, trading around 1.3240 during the Asian hours on Friday. The pair strengthens as the US Dollar (USD) weakens amid growing expectations of a Federal Reserve (Fed) rate cut in December.
According to the CME FedWatch Tool, markets are now pricing in over an 87% chance of a 25 bps cut at the upcoming December meeting, a sharp rise from the 39% probability seen just a week earlier. Traders are also anticipating three additional rate cuts by the end of 2026.
These expectations for additional rate cuts firmed after reports indicated that White House National Economic Council Director Kevin Hassett is the leading candidate for the next Fed chair. Traders see Hassett as aligned with US President Donald Trump’s preference for lower interest rates.
The GBP/USD pair also advances as the Pound Sterling (GBP) strengthens, with traders reassessing UK Chancellor Rachel Reeves’ latest budget and her renewed pledge to maintain fiscal discipline.
However, the British Pound saw market sentiment jolt after the early release of the Office for Budget Responsibility’s forecasts, which projected weaker economic growth but also revealed a larger-than-expected £22 billion fiscal buffer. Despite concerns over backloaded fiscal tightening, the broader signal of improving public finances helped stabilize the currency.
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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