The Pound Sterling (GBP) has seen an increase in value against its major counterparts, with investors keeping a close eye on how the Bank of England (BoE) will navigate the interest rate cut path in 2025. The recent BoE policy announcement showed a dovish undertone, as a larger split than expected within the MPC led to increased bets for interest rate cuts next year. Currently, traders are projecting a 53-basis points reduction in interest rates for 2025, with at least two 25 bps cuts anticipated.
Meanwhile, the US Dollar (USD) has seen some weakness, with the GBP/USD pair climbing to around 1.2550. The US Dollar Index (DXY) has edged lower to near 108.00, amid expectations that the Federal Reserve (Fed) will deliver fewer interest rate cuts in 2025. Fed officials have projected a Federal fund rate of 3.9% by the end of 2025, indicating a more cautious approach towards interest rate cuts due to positive growth outlook and a steady labor market.
In addition, US Initial Jobless Claims for the week ending December 20 came in lower than expected, surprising economists with a decrease to 219K. However, persistent inflationary pressures have raised concerns about price pressures remaining stubborn in the coming months. The upcoming release of revised estimates for S&P Global and ISM Manufacturing Purchasing Managers’ Index (PMI) data for December will likely be a key trigger for the US Dollar’s movement.
The US Dollar has shown varied performance against major currencies, with the Swiss Franc being the weakest against the USD. Technical analysis indicates that the Pound Sterling remains vulnerable against the US Dollar, with a breakdown below key levels indicating a strong bearish trend in the long run. The 14-day Relative Strength Index (RSI) falling below 40.00 suggests a potential for further downside momentum. Support levels for the GBP/USD pair are expected near 1.2300, while resistance lies at 1.2730.
Overall, the Pound Sterling’s rise against the US Dollar and other major peers is driven by expectations of a more dovish BoE policy in 2025, while the US Dollar faces pressures from a less aggressive interest rate cut outlook by the Federal Reserve. The upcoming data releases and economic indicators will play a crucial role in determining the direction of both currencies in the coming weeks. Traders will closely monitor central bank decisions and economic data to adjust their positions and capitalize on potential opportunities in the forex markets.
