Pound Sterling trades broadly firm as 2025 draws to a close
- The Pound Sterling remains broadly firm against its peers in the last trading day of 2025.
- The BoE is expected to follow a gradual monetary easing path next year.
- FOMC Minutes show that Fed officials support the need for additional interest rate cuts.
The Pound Sterling (GBP) trades broadly higher against its major peers in European trading hours on the last day of 2025. The British currency remains upbeat on market expectations that it will continue to outperform in 2026 amid hopes that there will be fewer interest rate cuts by the Bank of England (BoE) compared to other central banks.
In the monetary policy announced this month, the BoE reduced interest rates by 25 basis points (bps) to 3.75%, and guided that the monetary policy will remain on a gradual downward path.
“We still think rates are on a gradual downward path, but with every cut, how much further we go becomes a closer call,” the BoE said in the monetary policy statement. The bank also stated that inflation is expected to “ease in Q1 2026 to around 3%, closer to 2% in Q2".
Given that the BoE is confident about inflation returning to the 2% target in the mid-term, the major focus area for officials will be the United Kingdom (UK) labor market. In 2025, UK job market conditions remained weak as employers limited hiring following the increase in their contribution to social security schemes. In the three months ending October, the UK Unemployment Rate jumped to 5.1%, the highest level seen since March 2021.
Daily Digest Market Movers: Pound Sterling ticks lower against US Dollar
- The Pound Sterling edges down to near 1.3455 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair ticks lower as the US Dollar rises despite the release of dovish Federal Open Market Committee (FOMC) minutes of the December policy meeting.
- The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, posts a fresh weekly high near 98.35.
- The FOMC minutes showed on Tuesday that officials argued in favor of reducing interest rates further, even after trimming them by 75 basis points (bps) in 2025, to support weakening labor market conditions. Most participants noted that "moving toward a more neutral policy stance would help forestall possible job market deterioration,” the FOMC minutes showed.
- According to the CME FedWatch tool, there is a 76.1% chance that the Fed will cut interest rates by at least 50 basis points (bps) in 2026.
- Going forward, the major trigger for the US Dollar will be the announcement of Fed Chair Jerome Powell’s successor. According to comments from US President Donald Trump, the name of the next Fed Chairman will be announced sometime in January.
Technical Analysis: GBP/USD holds key 20-day EMA
In the daily chart, GBP/USD trades at 1.3454, slightly down on the day. The 20-day EMA at 1.3410 trends higher, and the price holds above it, maintaining a near-term bullish bias. The average has advanced steadily in recent sessions and now offers immediate dynamic support. The RSI at 60 sits on the positive side of neutral and has eased from recent peaks, keeping momentum constructive without overextension.
Measured from the 1.3794 high to the 1.3009 low, the 61.8% retracement at 1.3494 acts as resistance as the pair presses into the upper half of the pullback map. A daily close above 1.3494 could extend gains, while failure to clear it would keep the rebound capped and leave price vulnerable toward the rising 20-day EMA.
(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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