GBP/USD holds positive ground above 1.3300, eyes on Fed rate decision
- GBP/USD gains ground to near 1.3305 in Wednesday’s early European session.
- The US Federal Reserve interest rate decision will be in the spotlight later on Wednesday.
- Financial markets now put the chance of a BoE rate cut next week at around 88%.
The GBP/USD pair trades on a firmer note around 1.3305 during the early European session on Wednesday. The Greenback edges lower against the Pound Sterling (GBP) as the US Federal Reserve (Fed) is widely expected to announce another interest rate cut on Wednesday. The UK monthly Gross Domestic Product (GDP) report will be published later on Friday.
Markets have priced in nearly a 90% probability that the US central bank will lower the benchmark overnight rate by 25 basis points (bps) at the conclusion of its two-day meeting on Wednesday. This would be the third rate reduction this year, bringing the target range to 3.50%-3.75%.
However, traders anticipate a "hawkish cut” with cautious forward guidance. The Fed potentially indicates a pause in early 2026 due to lingering inflation concerns and a still resilient labor market. This, in turn, could provide some support to the USD and create a headwind for the major pair.
On the GBP’s front, concerns over higher overall taxation levels following the announcement of the UK autumn budget, along with softer inflation and a cooling labor market, add weight to the prospect of further Bank of England (BoE) policy shifts. Financial markets are currently pricing in a high probability around 88% of a quarter-point reduction at the upcoming BoE’s December meeting after signs from economic data that inflation pressure has eased, according to the Reuters.
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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
