Pound Sterling trades broadly stable in calm start of the week ahead of the Fed
- The Pound Sterling trades broadly calm against its major peers at the start of a week featured by the Fed interest-rate decision.
- Investors expect both the Fed and the BoE to cut interest rates by 25 bps this month.
- The Fed might call for a pause after a rate cut on Wednesday as inflation remains well above the 2% target.
The Pound Sterling (GBP) trades calmly against its major currency peers at the start of the week, hovering at around 1.3320 against the US Dollar (USD). In a week in which the United Kingdom (UK) economic calendar is light, the British currency is expected to be influenced by global events and market expectations for the Bank of England’s (BoE) monetary policy outlook.
Traders are confident that the BoE will cut interest rates in the policy meeting next week amid weak UK labor market conditions and signs of a slowdown in inflation . The job market data for the three months ending September showed that the Unemployment Rate rose to 5%. Meanwhile, the headline Consumer Price Index (CPI) report for October showed that inflation stood at 3.6% on an annual basis, the lowest level in four months.
For more cues on the monetary policy outlook, investors will focus on the speech by Bank of England (BoE) external member Alan Taylor, which is scheduled at 14:30 GMT.
Daily digest market movers: Pound Sterling wobbles against US Dollar ahead of Fed’s policy
- The Pound Sterling consolidates against the US Dollar (USD) around 1.3320 during the European trading session on Monday. The GBP/USD pair turns sideways after posting an over a month high at around 1.3385 last week, while the US Dollar trades cautiously ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles to hold its over five-week low of 98.75 posted on Thursday.
- The CME FedWatch tool shows that the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% on Wednesday's policy meeting is 87%.
- The major trigger behind the firm Fed dovish expectations is weakening job market conditions. In late November, New York Fed Bank President John Williams also warned of slower economic growth and weak labour demand, while supporting the need for more interest-rate cuts. "Economic growth has slowed and the labor market gradually cooled," Williams said, adding that "there is room for a further adjustment in the near term.”
- With traders remaining confident that the Fed will cut interest rates on Wednesday, the major trigger for the US Dollar will be guidance on the monetary policy outlook. Federal Open Market Committee (FOMC) members are expected to support holding interest rates steady in early 2026 as inflationary pressures have remained well above the 2% target for months.
Technical Analysis: GBP/USD consolidates around 1.3320
The Pound Sterling trades flat around 1.3320 against the US Dollar on Monday. The pair holds above a rising 20-day Exponential Moving Average (EMA) at 1.3227, maintaining a positive near-term bias. The 20-day EMA has sloped higher in recent sessions, and dips remain shallow.
The 14-day Relative Strength Index (RSI) at around 60 reflects bullish momentum.
Momentum remains supportive as price stays above the rising 20-day EMA. A daily close above the 50% Fibonacci retracement at 1.3402 would reinforce the bullish tone and open room towards the October 17 high of 1.3471. Conversely, failure to breach that barrier would keep the pair consolidating, with pullbacks leaning toward the 38.2% Fibonacci area and trend support at 1.3310.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.