- The Pound Sterling experiences a whipsaw move after BoE Governor Bailey predicted four interest-rate cuts in 2025 as he expects the disinflation process to be embedded.
- Traders expect the BoE to keep interest rates steady at 4.75% at this month's meeting.
- Investors await a slew of US economic data and Fed Powell’s speech.
The Pound Sterling (GBP) surrenders some of its gains against its peers on Wednesday after Bank of England (BoE) Governor Andrew Bailey forecasted four interest-rate cuts in 2025 in an interview with Financial Times (FT).
Andrew Bailey reiterated that interest rates should be lowered gradually and emphasized the need to do more to bring inflation down even though the “disinflation process is well embedded”. When asked about the impact of tariffs by US President-elect Donald Trump on the United Kingdom (UK) inflation, Bailey said that these effects "are not straightforward to predict.”
Bailey didn’t guide about the likely interest rate action in the monetary policy meeting on December 19, but traders expect the BoE to leave interest rates unchanged at 4.75%.
Market expectations for the BoE to keep interest rates steady have been prompted by fears of United Kingdom (UK) inflation remaining persistent. UK’s inflation report for October showed that the annual core Consumer Price Index (CPI) – which excludes volatile items – accelerated to 3.3% and the service inflation rose to 5%. Inflation in the services sector is closely tracked by BoE officials for decision-making on the interest rate policy.
Daily digest market movers: Pound Sterling consolidates against US Dollar
- The Pound Sterling exhibits a subdued performance against the US Dollar (USD) in North American trading hours on Wednesday after facing selling pressure near 1.2700. The GBP/USD pair experienced whipsaw moves as the US Dollar clings to intraday gains even though the United States (US) ADP Employment Change data for November missed estimates marginally.
- The agency reported that the US private sector added fresh 146K jobs in November, significantly lower than 184K in October and marginally lower than expectations of 150K. The impact of the private sector employment data remained limited as investors await the US Nonfarm Payrolls (NFP) data on Friday, which will reflect the overall performance of the labor market.
- Investors will pay close attention to the NFP report as the Federal Reserve (Fed) started the policy-easing cycle in September amid worries over deteriorating labor demand, with high confidence over inflation remaining on a sustainable path to the bank’s target of 2%.
- Investors should be prepared for more volatility as Fed Chair Jerome Powell is scheduled to speak at the New York Times DealBook Summit at 18:45 GMT. Market participants will look for cues about whether the Fed will cut interest rates in the policy meeting on December 18. The probability for the Fed to cut interest rates by 25 basis points (bps) to 4.25%-4.50% is at 74%, while the rest favors leaving them unchanged at their current levels, according to the CME FedWatch tool.
- On the economic front, investors await the US ISM Services Purchasing Managers’ Index (PMI) data for November, which will be published at 15:00. Economists expect the Services PMI to have grown at a slower pace to 55.5 from the prior release of 56.0. A figure above 50.0 signals an expansion in economic activity.
Technical Analysis: Pound Sterling faces resistance from 20-day EMA
The Pound Sterling faces sellers against the US Dollar after a mean-reversion move to near the 20-day Exponential Moving Average (EMA) around 1.2710. The GBP/USD pair could fall further as its outlook remains bearish, with all short-to-long-term Exponential Moving Averages (EMAs) sloping downwards.
The 14-day Relative Strength Index (RSI) rebounds after turning oversold. However, the downside bias is still intact.
Looking down, the pair is expected to find a cushion near the upward-sloping trendline around 1.2500, which is plotted from March 2023 low near 1.1800. On the upside, the 200-day Exponential Moving Average (EMA) around 1.2830 will act as key resistance.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD dips below 1.1000 as Trump authorizes 90-day pause on tariffs
EUR/USD retreated below the 1.1000 mark on headlines indicating that United States President Donald Trump authorized a 90-day pause on non-retaliating countries. The pause applies to reciprocal and 10% tariffs, effective immediately, according to a Truth Social post. FOMC Minutes coming up next.
GBP/USD eases further on tariffs pause announcement, USD still weak
GBP/USD's correction seems to have met a decent contention around the 1.2750 zone so far on Wednesday, as investors continue to assess the ongoing US-China trade war ahead of the release of the FOMC Minutes. Pause in 10% and reciprocal tariffs lifted the mood.
Gold recedes to $3,050 on Trump's headlines
Gold prices now give away part of their advance and revisit the $3,050 zone per troy ounce after President Trump announced a 90-day pause on reciprocal and 10% tariffs.
Fed Minutes to offer clues on rate cut outlook amid tariff uncertainty
The eagerly awaited minutes from the US Fed’s March 18-19 monetary policy meeting are set for release on Wednesday at 18:00 GMT. During the gathering, policymakers agreed to keep the Fed Funds Target Range (FFTR) unchanged at 4.25%-4.50%.
Tariff rollercoaster continues as China slapped with 104% levies
The reaction in currencies has not been as predictable. The clear winners so far remain the safe-haven Japanese yen and Swiss franc, no surprises there, while the euro has also emerged as a quasi-safe-haven given its high liquid status.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.