- The Pound Sterling slides against the US Dollar amid expectations that the Federal Reserve will implement fewer interest rate cuts this year.
- The British currency remains under pressure as Goldman Sachs forecasts the Bank of England (BoE) will execute four rate cuts in 2025.
- Market participants focus on upcoming US labor market data on Thursday for clues about future Fed policy direction.
The Pound Sterling (GBP) plunges to a fresh eight-month low near 1.2440 against the US Dollar (USD) as 2025 begins, driven by a surge in the US Dollar Index (DXY) to a more-than-two-year high of approximately 108.60.
The USD gains strength amid expectations that President-elect Donald Trump’s pro-growth and inflationary policies, including immigration controls, higher import tariffs, and tax reductions, will bolster the US economy. This outlook suggests the Federal Reserve (Fed) may slow the pace of interest rate cuts, supporting the greenback and US Treasury yields.
Fed policymakers have already signaled fewer rate cuts in 2025, though Chair Jerome Powell has refrained from commenting on the full economic impact of Trump’s policies. The Fed’s latest dot plot projects the Federal Funds rate to reach 3.9% by the end of the year, up from the September forecast of 3.4%.
Looking ahead, investors will closely monitor US labor market data set for release next week, as robust employment figures could dampen Fed rate cut expectations, while weaker numbers may encourage them. Before that, market participants await the ISM Manufacturing PMI for December, due Friday, which is forecasted to edge slightly lower to 48.3 from 48.4 in November.
Daily Digest Market Movers: Pound Sterling Weakens on BoE Dovish Outlook
- The Pound Sterling fell against major currencies on Thursday amid rising expectations that the Bank of England (BoE) will accelerate its rate-cutting cycle this year.
- In 2024, the BoE lowered its key interest rate by 50 basis points (bps) to 4.75%, lagging behind European and North American peers due to persistent inflation in the UK services sector, driven by stubborn wage growth.
- Analysts at Goldman Sachs predict the BoE will cut rates quarterly in 2025, suggesting the policy rate could drop to 3.75% by year-end as cooling labor demand alleviates price pressures.
- Meanwhile, the final S&P Global/CIPS Manufacturing PMI fell short of initial estimates, contracting to 47.0 compared to the flash reading of 47.3.
Technical Analysis: Pound Sterling Breaks Below 1.2500
The Pound Sterling dips below the psychological support level of 1.2500 against the US Dollar on Thursday. GBP/USD remains under pressure, trading beneath the upward-sloping trendline near 1.2600, originating from the October 2023 low of 1.2035.
All Exponential Moving Averages (EMAs) across short to long-term timeframes point downward, confirming a sustained bearish trend. The 14-day Relative Strength Index (RSI) stays below 40.00, signaling strong downside momentum.
On the downside, a break below the immediate support of 1.2485 could push the pair toward the April 22 low of 1.2300. On the upside, key resistance is seen at the December 17 high of 1.2730.
