Pound Sterling gains ahead of BoE Bailey’s speech, Fed decision
- The Pound Sterling gains against its major currency peers as BoE members support gradual monetary easing.
- Investors await BoE Governor Bailey’s comments and the Fed’s monetary policy announcement.
- The Fed is expected to cut interest rates, citing employment risks.
The Pound Sterling (GBP) trades higher against its major currency peers on Wednesday as Bank of England (BoE) rate-setting members have favoured the gradual removal of monetary policy restrictiveness over aggressive easing.
On Tuesday, both BoE Deputy Governors Clare Lombardelli and Dave Ramsden supported a moderate monetary easing cycle, citing that risks to inflation are still on the upside.
“I worry more about the upside risks to inflation,” Lombardelli said, adding that she is less convinced than other members about “how restrictive monetary policy is at the moment, as in how far we are from reaching the end of the cutting cycle" before the Treasury Select Committee on Tuesday, The Wall Street Journal (WSJ) reported.
Separately, BoE’s Ramsden stated that a “gradual policy restraint’s removal remains appropriate” as it will allow the Monetary Policy Committee (MPC) to assess carefully the “balance of risks to inflation as the evidence evolves”, Reuters reported.
In the upcoming monetary policy announcement next week, the BoE is expected to cut interest rates by 25 basis points (bps) to 3.50%-3.75%.
For more cues on the BoE’s monetary policy outlook, investors will focus on comments from Governor Andrew Bailey in a pre-recorded fireside chat on financial stability at the Financial Times (FT) Global Boardroom Conference in London at 10:45 GMT.
Daily digest market movers: Pound Sterling trades higher against US Dollar
- The Pound Sterling trades 0.16% higher to near 1.3320 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair gains as the US Dollar drops slightly amid caution ahead of the Federal Reserve’s (Fed) monetary policy announcement at 19:00 GMT.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is down 0.1% around 99.10.
- The US Dollar has come under pressure as the Fed is almost certain to cut interest rates by 25 basis points (bps) to 3.50%-3.75%. According to the CME FedWatch tool, the probability of the Fed cutting interest rates in this meeting is 87.6%. This will be the third interest rate cut by the Fed in a row.
- Firm Fed dovish expectations are built on concerns about the US labour market, which has shown signs of weak job growth in the last few months. In the October monetary policy meeting, Fed Chair Jerome Powell also acknowledged that the “labour demand has clearly softened”. However, he strongly argued against reducing interest rates in the last meeting of 2026. “December cut is not for sure, far from it,” Powell said.
- In late November, New York Fed President John Williams also warned of downside employment risks, but shared a contrarian view from Powell, stating that there is room for further interest rate cuts as the policy is still moderately restrictive.
- Investors will also focus on the Fed’s monetary policy statement, dot plot, and Chairman Powell’s press conference this Wednesday to get fresh cues on the monetary policy outlook.
- The Fed is unlikely to endorse an aggressive monetary easing stance as the inflation has remained well above the 2% target for a long period.
Technical Analysis: GBP/USD holds steady above 1.3300
On the daily chart, GBP/USD trades at 1.3318. Price holds above the rising 20-day EMA at 1.3249, keeping the short-term uptrend intact. The average has turned higher in recent sessions, and dips would meet dynamic support near that gauge. A descending trend line from 1.3726, the September 17 high, was broken at 1.3026, removing overhead pressure and reinforcing a bullish bias.
The Relative Strength Index (RSI) at 58.9 stands above 50 and rising, confirming bullish momentum without overbought risk. If the pair maintains traction above the 20-day EMA at 1.3249, bulls could extend the advance, while failure to do so would expose a retracement toward the broken descending trend line around 1.3026.
(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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