The GBP/USD pair experienced a decline around 1.3485 in early European trading on Monday, influenced by increased demand for the US dollar (USD). Recently, the Bank of England (BoE) has suggested that its monetary policy will follow a steady downward path, hinting that major currency pairs might not see significant downside.
In its December meeting, the BoE’s Monetary Policy Committee opted to reduce the benchmark interest rate by a quarter percentage point to 3.75%. This marked the first cut since August of the previous year. During a press conference, Governor Andrew Bailey noted that while interest rates are likely to trend lower, every cut represents a challenging decision regarding the extent of the reduction.
On the dollar side, traders anticipate that the US Federal Reserve may lower interest rates twice in 2026, attributed to a softening labor market and declining inflation. Financial markets are indicating about an 18.3% chance that the Fed will cut rates at its upcoming policy meeting in January, according to the CME FedWatch tool. If the Fed adopts a more dovish stance, it could put downward pressure on the dollar, potentially creating a favorable environment for the GBP/USD pair in the near term.
Technical analysis:
Currently, on the daily chart, GBP/USD is trading at 1.3486. The 100-day EMA has slightly increased, and the price remains above this measure, supporting the medium-term upward trend. If there’s a rebound, it may find dynamic support at this average, keeping the broader trend intact. The RSI sits at 66 (bullish) after easing from higher levels, suggesting strong momentum without overbought conditions. Initial support can be seen at Bollinger’s middle band, positioned at 1.3393, with the 100-day EMA beneath it at 1.3336. Any move above this area may curb further declines and lean towards upside potential.
The Bollinger Bands are showing an upward trend, with prices consolidating in the upper range and nearing the upper band at 1.3547. This reflects ongoing bullish pressure, although it doesn’t appear overextended. The bands have widened slightly over recent sessions, indicating solid momentum. A breakthrough above this limit could provide more space for growth, while a rejection may result in consolidation toward the lower band at 1.3240.
Frequently asked questions about the British pound
Pound Sterling (GBP) is the longest-standing currency in the world (since 886 AD) and serves as the official currency for the United Kingdom. In 2022, it accounted for around 12% of global foreign exchange trade volume, with an average of $630 billion per day. Key trading pairs include GBP/USD, known as the “cable,” comprising 11% of trades, GBP/JPY (3%), referred to as the “dragon,” and EUR/GBP (2%). The Bank of England (BoE) is responsible for issuing Sterling.
The main influencer on the pound’s value is the monetary policy set by the Bank of England. The BoE’s decisions depend heavily on whether it achieves its primary goal of “price stability,” aiming for a steady inflation rate around 2%. Adjusting interest rates is the primary method to achieve this. If inflation rises too high, the BoE may increase rates, making borrowing more costly, which generally supports the pound. Conversely, if inflation drops too low, that may signal slowing economic growth, prompting the BoE to consider lowering rates to encourage borrowing and investment.
Economic data releases are important indicators of health and can affect the pound’s valuation. Metrics like GDP, manufacturing and services PMI, and employment affect GBP’s direction. A robust economy typically strengthens the pound, as it attracts more foreign investment, possibly leading the BoE to raise rates, thus directly supporting the currency. Conversely, weaker economic signals may weaken the pound.
Trade balance data is another crucial factor concerning the British pound. This measures the difference between a country’s export income and import expenditure over a period. When a country produces in-demand export goods, its currency often benefits from increased foreign buyers. A positive trade balance generally strengthens the currency, while a negative balance can have the opposite effect.
