Sterling Holds Firm as Markets Eye Gradual BoE Easing Path

Key Moments

GBP/USD trades near 1.3500 at the start of the final week of 2025, consolidating within a 1.3477–1.3534 range.
Investors expect the Bank of England to follow a moderate rate-cutting cycle in 2026, with UK inflation at 3.2% YoY in November.
The US Dollar remains under pressure as markets price in a faster Federal Reserve easing cycle in 2026, contrasting with recent Fed dot plot signals.

Sterling Steady Near Recent Highs

The Pound Sterling (GBP) is trading calmly against major currencies at the start of the last week of 2025. It hovers near 1.3500 versus the US Dollar (USD). The currency remains resilient as market participants anticipate a measured monetary easing cycle by the Bank of England (BoE) in 2026.

Investors see limited room for aggressive BoE rate cuts. Inflation in the United Kingdom (UK) is above the central bank’s 2% target, even after moderating in recent months. Annual inflation slowed to 3.2% in November, down from a 3.8% peak in the July–September period.

Earlier this month, the BoE reiterated that policy settings will follow a gradual downward trajectory rather than a sharp easing move. Consequently, the Pound is expected to trade largely sideways over the coming days. Liquidity may remain thin around the January 1 holiday.

Daily Digest: Policy Expectations Weigh on the Dollar

During Monday’s European session, GBP/USD held near 1.3500, consolidating within a 1.3477–1.3534 band. Meanwhile, the US Dollar Index traded cautiously around 98.00, close to its 12-week low of 97.75. This reflects broader pressure on the greenback.

The US Dollar is under strain as traders expect a faster Federal Reserve (Fed) easing cycle in 2026. According to the CME FedWatch tool, there is a 73.3% probability that the Fed will cut rates by at least 50 basis points next year.

However, these expectations contrast with the Fed’s most recent dot plot. Policymakers collectively see the Federal Funds Rate at 3.4% by the end of 2026, implying only one rate reduction from the current 3.50%–3.75% range.

Speculation about a more dovish Fed has grown amid assumptions that the next Fed Chair could favor additional cuts. Last week, US President Donald Trump expressed his desire for the Fed to “lower interest rates even if the market is doing well.”

Investors are awaiting the Federal Open Market Committee (FOMC) Minutes on Tuesday for further insight into the near-term policy outlook.

GBP/USD Technical Picture: Uptrend Bias Intact

On the daily chart, GBP/USD trades broadly stable at 1.3488. The 20-day Exponential Moving Average (EMA) stands at 1.3398 and is trending higher. Spot prices remain above this dynamic support, signaling persistent buying interest and an upward bias.

Momentum indicators support this trend. The 14-day Relative Strength Index (RSI) sits at 66, indicating bullish conditions without reaching overbought levels.

From a Fibonacci perspective, using the move from the 1.3794 high to the 1.3011 low, the 61.8% retracement at 1.3495 acts as immediate resistance. A break above this barrier could open the door to the 78.6% retracement at 1.3626.

(The technical analysis of this story was prepared with AI assistance.)

Level / Indicator	Value	Comment
Spot GBP/USD	1.3488	Broadly stable on the daily chart
20-day EMA	1.3398	Rising, price above support
14-day RSI	66	Bullish, not overbought
Fibonacci 61.8% (1.3794–1.3011)	1.3495	Immediate resistance
Fibonacci 78.6% (1.3794–1.3011)	1.3626	Next upside target if resistance breaks

Pound Sterling: Background and Drivers

The Pound Sterling (GBP) is the official currency of the United Kingdom. It is the world’s oldest currency, dating back to 886 AD. The Pound is the fourth most traded currency globally, accounting for 12% of all FX transactions, averaging $630 billion daily in 2022.

Key GBP pairs include GBP/USD, known as “Cable,” representing 11% of FX turnover; GBP/JPY, called the “Dragon,” with 3%; and EUR/GBP at 2%. The Bank of England (BoE) issues the Pound.

BoE Policy and Its Impact on Sterling

The BoE’s monetary policy is the main driver of GBP’s value. Its goal is “price stability,” keeping inflation close to 2%. The central bank adjusts interest rates to achieve this target.

When inflation rises above target, the BoE may raise rates to cool price pressures. Higher borrowing costs support GBP, as UK assets become more attractive to international investors.

Conversely, when inflation is low, the BoE may cut rates. Lower costs encourage businesses to invest and boost economic growth.

Economic Data and Trade Balance as Key Influences

Macroeconomic data affects the Pound significantly. GDP, manufacturing and services PMIs, and labor market reports often drive GBP direction.

Strong data tends to support the Pound. It may attract foreign investment and prompt the BoE to consider higher rates. Weak data usually weighs on the currency.

The trade balance also matters. A surplus strengthens the Pound by increasing foreign demand for UK exports. A deficit can weaken it.