- Pound Sterling edges higher against major peers despite expectations of additional Bank of England (BoE) rate cuts in 2025 exceeding market projections.
- Goldman Sachs forecasts the BoE will lower interest rates in every quarter of the coming year.
- The US Dollar remains steady amid thin trading conditions ahead of New Year celebrations.
The Pound Sterling (GBP) climbs toward 1.2600 against the US Dollar (USD) at the start of the week, though low volatility is expected for the GBP/USD pair due to thin trading volumes ahead of New Year celebrations. Meanwhile, the US Dollar Index (DXY), which measures the Greenback against six major currencies, dips below 108.00 but is on track to close the year with a 6.7% gain.
The US Dollar has performed strongly in 2024, despite the Federal Reserve (Fed) reducing its key interest rates by 100 basis points to 4.25%-4.50%. The Greenback’s strength has been particularly evident in the past three months, driven by Republican Donald Trump’s victory in the US presidential election and anticipated inflationary and pro-growth policies, including immigration control, higher import tariffs, and tax cuts.
The Fed has also signaled fewer rate cuts for 2025, supported by strong economic growth projections, slowing disinflation, and a healthier labor market. However, Fed Chair Jerome Powell has remained cautious about forecasting the impact of Trump’s policies, stating on December 18 that, “It is very premature to make any kind of conclusions,” as details on tariffs and their scope remain unclear.
This week, key market drivers for the Pound Sterling and the US Dollar will include final estimates for December’s S&P Global and US ISM Manufacturing PMI data.
Daily Digest Market Movers: Pound Sterling Rebounds Amid Rising BoE Dovish Bets
- Pound Sterling edges higher against major peers in Monday’s North American session, rebounding despite an increase in dovish expectations for the Bank of England’s (BoE) monetary policy in 2025.
- Traders now anticipate a 53-basis point (bps) rate cut for the coming year, up from 46 bps priced in after the BoE’s December 19 decision to hold interest rates steady at 4.75% with a 6-3 vote split. Prior to the announcement, markets expected only one MPC member to vote for a rate cut.
- The BoE has been slower to ease rates compared to other central banks, cutting its borrowing rates by just 50 bps this year. In contrast, the Federal Reserve and the European Central Bank reduced their rates by 100 bps, while the Bank of Canada and the Swiss National Bank implemented even steeper cuts to address inflation risks.
- According to Goldman Sachs, “UK wage growth and services inflation remain notably stickier than elsewhere, despite signs of material labor market rebalancing.” This cautious approach has set the BoE apart from other central banks. However, Goldman Sachs predicts continued quarterly rate cuts through 2025, outpacing market expectations as a weaker labor market helps cool inflation pressures.
Technical Analysis: Pound Sterling Trades Sideways Near 1.2600
The Pound Sterling remains range-bound against the US Dollar, trading below 1.2600 on Monday. The GBP/USD outlook remains bearish, as the pair is positioned below the upward-sloping trendline at 1.2600, drawn from the October 2023 low of 1.2035. All key Exponential Moving Averages (EMAs) are trending downward, reinforcing the overall negative sentiment.
The 14-day Relative Strength Index (RSI) hovers near 40.00, with further downside momentum possible if it stays below this level. On the downside, immediate support is at 1.2485, with a deeper pullback potentially reaching the April 22 low around 1.2300. To the upside, the December 17 high at 1.2730 remains a significant resistance level.
