Pound Sterling extends gains as BoE looks set to keep rates on hold

The Pound Sterling (GBP) trades higher against its major currency peers on Wednesday as investors await the Bank of England’s monetary policy announcement on Thursday. The British currency gains on expectations that the BoE will leave interest rates unchanged at 3.75% in its first policy meeting of 2026.

Market participants anticipate the United Kingdom (UK) central bank to hold borrowing rates steady after slashing them by 25 basis points (bps) in December, while guiding that the monetary policy will remain on a “gradual downward path". Out of the nine-member-led-Monetary Policy Committee (MPC), Swati Dhingra and Alan Taylor are expected to vote for an interest rate cut.

In mid-January, Taylor said in a summit in Singapore that he sees inflation returning to the central bank’s 2% target in “mid-2026, more quickly than having to wait until 2027”, and projected that interest rates could “normalise to the neutral (level) sooner rather than later”.

In the December policy meeting, officials also expressed confidence that “inflation will come closer to 2%” in the second quarter of 2026.

Alongside the BoE’s interest rate decision, investors will focus on the quarterly Monetary Policy report that will show inflation expectations over the next two years and the current state of the economy.

Daily Digest Market movers: Investors await key US private employment, Services PMI data

• The Pound Sterling is up marginally to near 1.3700 against the US Dollar (USD), and higher around 0.8635 against the Euro (EUR) during European trading hours on Wednesday. The GBP/USD pair edges higher as the Pound Sterling trades broadly firm. The US Dollar has also risen ahead of the release of the United States (US) ADP Employment Change and the ISM Services Purchasing Managers’ Index (PMI) data for January during the North American trading session.
• At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.15% higher to near 97.50..
• Investors will closely monitor the private-sector employment and the Services PMI data to get fresh cues on the state of the US economy and labor market, key factors for the Fed when setting interest rates. Economists expect US private employers to have added 48K workers, higher than 41K in December. The ISM Services PMI is expected to come in lower at 53.5 from the prior reading of 54.4, indicating that the service sector activity advanced again but at a moderate pace.
• Upbeat US private job market and ISM Services PMI data would force traders to pare bets supporting interest rate cuts by the Fed in the near term. On the contrary, soft numbers would boost these odds.
• According to the CME FedWatch tool, the Fed is expected to deliver its first interest rate cut in the June policy meeting after leaving them unchanged in the range of 3.50%-3.75% in March and April.
• Meanwhile, the US House has approved the funding to end the partial government shutdown on Tuesday. However, the US Nonfarm Payrolls (NFP) data for January will not be published on Friday, as per the latest reports.

Technical Analysis: GBP/USD holds firmly above 20-day EMA

GBP/USD trades higher at around 1.3712 at the time of writing. The pair holds above the rising 20-day Exponential Moving Average (EMA) at 1.3605, keeping the short-term trend pointed higher. The 20-day EMA has firmed over recent sessions, signaling increasing upside pressure.

The 14-day Relative Strength Index (RSI) at 62 (positive) confirms bullish momentum without overbought conditions.

Maintaining daily closes above the 20-day EMA at 1.3605 would preserve the upward bias and encourage follow-through towards reclaiming the four-year high of 1.3866. However, a decisive close back below that gauge would soften the tone and invite a deeper retracement towards the psychological level of 1.3500.

(The technical analysis of this story was written with the help of an AI tool.)