The GBP/USD currency pair is experiencing a downturn, hovering around the 1.2500 level due to a stronger US Dollar and shifting expectations regarding future interest rate cuts from the Federal Reserve. Trading has remained relatively light following the Christmas holiday, contributing to this subdued performance, with the British Pound facing pressure from increasing odds of a more dovish monetary policy from the Bank of England.
During the early Asian trading hours on Friday, GBP/USD was recorded at approximately 1.2520, indicative of the pair’s ongoing weakness. The US Dollar’s recent strength stems from the Federal Reserve’s latest meetings, where it was revealed that future rate cuts might be fewer than previously anticipated. Following a 25 basis-point reduction in December, the Fed’s updated forecast has been adjusted to include only two rate cuts by 2025, creating a more cautious outlook. This adjustment aligns with recent softening in inflation data, which has contributed to the reluctance to pursue aggressive rate cuts next year.
The US Dollar Index, which tracks the currency’s performance against a basket of major currencies, remains solidly above 108.00, reflecting its robust position in the market, though it has slightly retreated from its recent highs. Meanwhile, subdued US Treasury yields, with the 2-year and 10-year yields standing at 4.33% and 4.58%, respectively, could temper any further gains for the dollar.
Meanwhile, the Pound Sterling’s outlook has dimmed as market sentiment turns toward a more dovish approach from the Bank of England. Although the BoE kept its key interest rate unchanged at 4.75% in December, an unexpected split vote among policymakers, with three voting for rate cuts, has raised concerns about a more rapid pace of easing by 2025. Consequently, expectations have shifted toward a potential 53 basis-point cut in 2025, up from 46 bps, underscoring a notable shift in monetary policy expectations among investors.
