The GBP/USD currency pair held within striking distance of a three-month high of 1.3534 on Tuesday, as investors awaited the minutes from the Federal Reserve’s December meeting, which may provide clues over monetary policy trajectory.
The Fed lowered its federal funds rate target range by 25 basis points to 3.50%-3.75% at its December meeting. But, the vote was divided, as three FOMC members continued to vote against the rate reduction.
Fed Chair Jerome Powell has not offered any guidance on the timing of the next rate cut.
FOMC policy makers signaled just one 25 bps rate cut for next year, while investors continue to expect two or three rate cuts of 25 basis points each.
Markets are now pricing in about a 50% chance for the first cut to occur in March.
At the same time, market participants see limited scope for aggressive monetary policy easing by the Bank of England in 2026.
Earlier this month, the BoE reiterated that policy settings will follow a gradual downward trajectory rather than a sharp easing move.
The BoE reduced its benchmark interest rate by 25 basis points to 3.75% at its December meeting, while four MPC members favored keeping the rate unchanged at 4.00%.
The central bank said the scale of any additional rate reductions would depend on how the inflation outlook develops.
Inflation in the UK has remained above the BoE’s 2% target, even after moderating in recent months. Annual inflation has slowed to 3.2% in November from a 3.8% peak during the July–September period.
The GBP/USD currency pair was last down 0.20% on the day to trade at 1.3483.
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