The GBP/USD exchange rate has shown signs of recovery, hovering near the 1.2600 level ahead of the Bank of England’s (BoE) upcoming interest rate decision. The Pound Sterling faced a significant decline, dropping over 1% against the US Dollar due to the Federal Reserve’s recent hawkish stance, which introduced only two anticipated rate cuts for 2025, a reduction from earlier projections.
After experiencing a notable dip, the GBP/USD pair is currently trading around 1.2590 as it gains traction during the Asian trading hours on Thursday. The expectation that the BoE will maintain interest rates in its next meeting has bolstered the Pound’s position, particularly as the central bank focuses on tackling persistent domestic inflation.
Recent UK economic data revealed an uptick in the Consumer Price Index (CPI), which increased by 2.6% year-over-year in November, up from a 2.3% rise in October. Core CPI, which excludes more volatile food and energy prices, saw a year-on-year increase of 3.5%, compared to 3.3% previously. Additionally, annual services inflation remained stable at 5%, slightly below projections yet above the BoE’s estimate.
The US Dollar’s strength, following the Federal Reserve’s decision to reduce rates by 25 basis points to a range of 4.25% – 4.50%, has placed further pressure on the GBP/USD . The summary of economic projections from the Fed indicated a cautious approach moving forward, with Fed officials expressing concerns about inflation remaining above their 2% target.
Attention now turns to the BoE’s interest rate decision, which could heavily influence the Pound’s trajectory. If the central bank adopts a more hawkish tone regarding the inflation outlook and opts for a rate hike, it would typically support the Pound. Conversely, a dovish approach that favors maintaining or cutting rates could result in downward pressure on the currency.
