- The Pound Sterling hovers near 1.2400 against the US Dollar, pressured by the Federal Reserve’s indication of fewer rate cuts in 2025.
- A decline in US Initial Jobless Claims points to strengthening labor market conditions, further supporting the Dollar.
- The Bank of England is projected to reduce interest rates by 60 basis points this year, weighing on the Pound.
The Pound Sterling (GBP) hovers near an eight-month low around 1.2400 against the US Dollar (USD) in Friday’s European session, pressured by the Dollar’s continued strength as markets anticipate fewer Federal Reserve interest rate cuts this year.
The Fed’s latest dot plot projects Federal Funds rates to reach 3.9% by the end of 2025, up from the 3.4% forecast in September. Meanwhile, the US Dollar Index (DXY) climbed to a two-year high above 109.00 on Thursday, supported by strong labor market data and optimism about the incoming Trump administration’s policies, including tighter immigration controls, higher import tariffs, and lower taxes.
US Initial Jobless Claims fell to 211K for the week ending December 27, the lowest level in eight months, signaling robust labor market conditions. Later today, investors will monitor the US ISM Manufacturing PMI for December, due at 15:00 GMT, with expectations for an unchanged reading of 48.4, indicating sustained contraction in the manufacturing sector.
Daily Digest Market Movers: Pound Sterling Trades Cautiously Amid Weaker Manufacturing Data and BoE Dovish Bets
- The Pound Sterling (GBP) faces pressure on Friday as it trades cautiously against its major peers, weighed down by weaker UK S&P Global/CIPS Manufacturing PMI data for December. The final report showed that manufacturing activity contracted more sharply than expected, falling to 47.0 from the preliminary reading of 47.3. The downturn was widespread, with significant declines seen across consumer, intermediate, and investment goods industries.
- Rob Dobson, Director at S&P Global Market Intelligence, noted that business sentiment in the UK is at its lowest in two years, with policy changes and government rhetoric dampening confidence and raising costs for UK factories and their clients. Small and medium-sized enterprises (SMEs) are reportedly being hit hardest by the downturn.
- Additionally, growing dovish expectations for the Bank of England (BoE) have further pressured the Pound. Traders are now pricing in a 60 basis point (bps) interest rate cut by the BoE this year, a slight acceleration from the 53 bps anticipated in late December.
Technical Analysis: Pound Sterling Remains Bearish with Downward Sloping EMAs
The Pound Sterling (GBP) dropped below the 1.2400 level against the US Dollar (USD) on Thursday, continuing its bearish trend. The GBP/USD pair is trading below the upward-sloping trendline near 1.2600, which is drawn from the October 2023 low of 1.2035, highlighting a vulnerable outlook.
All short-to-long-term Exponential Moving Averages (EMAs) are sloping downwards, confirming a strong bearish momentum in the long run.
The 14-day Relative Strength Index (RSI) remains below 40.00, indicating strong downside pressure.
To the downside, the pair is expected to find support near the April 22 low at approximately 1.2300. On the upside, the psychological level of 1.2500 is likely to act as key resistance.
