The Pound Sterling rose by 0.16% to approximately 1.3320 against the US Dollar during the European trading session, influenced by comments from Bank of England members favouring gradual easing in monetary policy. The US Dollar dipped slightly as the market awaits the Federal Reserve’s policy announcement where a rate cut of 25 basis points to a range of 3.50%-3.75% is highly anticipated.
The probability of this rate cut, according to the CME FedWatch tool, stands at 87.6%. This would mark the third consecutive rate cut, amid concerns about the US labour market’s weak job growth. Fed Chair Jerome Powell noted that while labour demand has softened, a December rate cut is not guaranteed. Meanwhile, BoE Deputy Governors indicate concerns about inflation remain, favouring a moderate easing cycle.
Pound’s Technical Analysis
The Pound’s technical analysis shows GBP/USD trading at 1.3318, holding above its 20-day EMA, maintaining a short-term uptrend. The RSI is above 50, suggesting conditions favourable for further advances. Central banks aim to manage inflation near a 2% target by adjusting policy rates, either hiking to tighten or cutting to ease monetary conditions.
Given that the Federal Reserve’s 25 basis point rate cut is almost fully priced in, the immediate focus should shift to the volatility expected around the policy statement and Jerome Powell’s press conference. We see the market’s reaction hinging not on the cut itself, but on the future guidance provided in the dot plot. Any signal of a pause or a more hawkish tone could cause a sharp reversal in the US Dollar’s recent weakness.
The Fed’s decision is being forced by a softening labor market, a trend we’ve watched develop since mid-2025. The most recent Non-Farm Payrolls report for November 2025 came in at a weaker-than-expected 155,000, confirming this cooling trend. However, with recent data showing US Core CPI inflation stubbornly hovering around 3.7%, the Fed is in a difficult position, limiting how aggressively they can ease policy.
Contrasting Approaches
In contrast, the Bank of England’s expected cut next week appears more reluctant, driven by a desire to get ahead of a slowing economy rather than reacting to immediate data. UK inflation has proven more persistent than in the US, which explains why members like Lombardelli and Ramsden are stressing a gradual approach. This relative hawkishness from the BoE is a key reason we are seeing the Pound Sterling outperform the US Dollar, pushing GBP/USD to its current level of 1.3320.
Considering this divergence, we should position for continued, but perhaps choppy, strength in the GBP/USD pair. Looking back, this period of easing in 2025 is a stark contrast to the aggressive hiking cycles we experienced back in 2022 and 2023. Derivative traders might consider buying call options on GBP/USD to capitalize on further upside while limiting risk, should Powell’s commentary spook the market.
The technical picture supports this bullish bias, with the pair holding comfortably above the 20-day exponential moving average at 1.3249. This level now acts as a key support, and as long as we remain above it, the path of least resistance is higher. A failure to hold this support following the Fed announcement would signal a significant shift in momentum, exposing a potential drop back towards the 1.3026 area.
