Pound Sterling trades calm near recent highs amid hopes of BoE moderate easing cycle
- The Pound Sterling trades broadly stable against its major peers towards the start of 2026.
- Investors expect the BoE to follow a moderate monetary easing cycle next year.
- Investors await the release of the FOMC minutes for fresh cues on the Fed's monetary policy outlook.
The Pound Sterling (GBP) trades calmly against its major peers at the start of the last week of 2025, holding steady around 1.3500 against the US Dollar (USD). The British currency remains broadly firm as investors expect the Bank of England (BoE) to follow a moderate monetary easing cycle in 2026.
The BoE is unlikely to cut interest rates aggressively next year as inflation in the United Kingdom (UK) is still well above the central bank’s 2% target, despite slowing down in the past few months. Inflation decelerated to 3.2% YoY in November after peaking at 3.8% in the July-September period.
In the monetary policy announcement this month, the BoE reiterated that the monetary policy will remain on a gradual downward path.
The Pound Sterling is expected to trade flat in the following days, with markets poised to be illiquid amid the holiday on January 1 due to New Year celebrations.
Daily Digest Market Movers: Trump wants new Fed Chairman to cut rates despite markets rising
- The Pound Sterling steadies around 1.3500 against the US Dollar during Monday’s European session. The GBP/USD pair consolidates broadly within a range between 1.3477 and 1.3534, with the US Dollar Index trading cautiously around 98.00, close to its 12-week low of 97.75.
- The US Dollar is broadly under pressure as investors expect the Federal Reserve (Fed) to maintain a quicker monetary-easing cycle in 2026 compared to that of 2025. According to the CME FedWatch tool, there is a 73.3% chance that the Fed will reduce interest rates by at least 50 bps in 2026.
- This is contrary to what Fed officials signaled in the last dot plot, which showed that policymakers collectively see the Federal Funds Rate heading to 3.4% by the end of 2026. This means there will be only one interest rate cut next year from the current range of 3.50%-3.75%.
- Fed dovish speculation has been intensified due to expectations that Chairman Jerome Powell’s successor will favor more interest rate cuts. Last week, United States (US) President Donald Trump stated that he wants the new Fed Chairman to "lower interest rates even if the market is doing well".
- For fresh cues on the near-term monetary outlook, investors await Federal Open Market Committee (FOMC) Minutes, which are scheduled for Tuesday.
Technical Analysis: GBP/USD stays firmly above 20-day EMA
In the daily chart, GBP/USD trades broadly stable at 1.3488. The 20-day Exponential Moving Average (EMA) at 1.3398 ascends, and the price holds above it, reinforcing an upward bias. The recent steepening of this EMA reflects steady buying pressure.
The 14-day Relative Strength Index (RSI) at 66 is bullish without overbought conditions.
Measured from the 1.3794 high to the 1.3011 low, the 61.8% retracement at 1.3495 acts as resistance. A break above it could trigger a move toward the 78.6% retracement at 1.3626.
(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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