The GBP\/USD pair sees a decline to approximately 1.3485 during the early European session on Monday, with increased demand for the US Dollar. Despite this weakening, the Bank of England’s guidance on a gradual downward monetary policy could limit further downside risks for the pair.<\/p>\n
The BoE cut its benchmark interest rate by a quarter point to 3.75% in December, marking the first reduction since last August. Governor Andrew Bailey mentioned that while rates may continue to fall, the extent of additional cuts will require careful consideration. Meanwhile, the US Federal Reserve may make two rate cuts in 2026 due to a cooling labour market, with financial markets forecasting an 18.3% chance of a rate reduction by January.<\/p>\n
On the technical front, GBP\/USD holds at 1.3486 with support from the 100-day EMA, suggesting a medium-term upward trend. Initial support is at 1.3393, while the first resistance is at 1.3547. Bollinger Bands indicate persistent bullish pressure, with potential for extension if the pair closes above the upper band.<\/p>\n
The Pound Sterling is the oldest currency, issued by the Bank of England, and accounts for 12% of global foreign exchange transactions. Economic data and trade balance figures, alongside BoE’s monetary policy, are key influences on its value.<\/p>\n
As we look at the GBP\/USD pair trading around 1.3485, its position above the 100-day moving average keeps the medium-term outlook positive. However, we see the Bank of England has already begun its easing cycle, having cut rates to 3.75% at its December 2025 meeting. This move was widely expected after the latest data from November 2025 showed UK inflation had fallen to 2.4%, bringing it much closer to the Bank’s 2% target.<\/p>\n
The BoE’s dovish stance is further justified by an economy that has shown clear signs of stalling. We saw that UK GDP growth for the third quarter of 2025 was nearly flat at just 0.1%, and the most recent retail sales figures for November disappointed with a 0.5% month-over-month decline. This weak economic backdrop suggests that further rate cuts are likely in 2026, which could limit the Pound’s potential upside.<\/p>\n
On the other side of the trade, the US Dollar is feeling pressure from expectations of future Federal Reserve rate cuts, even though they have not started yet. The November 2025 jobs report indicated a cooling labor market, with a lower-than-expected 140,000 jobs added and the unemployment rate ticking up to 4.1%. This, combined with the Fed\u2019s preferred inflation gauge falling to 2.6%, has solidified market bets for at least two rate cuts during 2026.<\/p>\n
For derivative traders, the critical factor in the coming weeks will be the relative pace of easing between the BoE and the Fed. Since the BoE has already made the first move, any surprisingly weak US economic data could accelerate expectations for Fed cuts and push the pair toward the 1.3547 resistance level. We believe using options to play rising volatility heading into the January 2026 central bank meetings could be a prudent strategy to manage this uncertainty.<\/p>\n
In the near term, the pair remains in a bullish channel, with the technicals suggesting dips could be shallow. We would view a pullback towards the 1.3393 support level as a potential buying opportunity, especially if upcoming US data confirms a softening economy. This is a starkly different environment from the aggressive rate-hiking cycle we traded through back in 2022 and 2023, where monetary policy provided a clear tailwind for the dollar.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" GBP\/USD dips to 1.3485 as USD strengthens; BoE\u2019s cautious stance may limit further downside.<\/p>\n","protected":false},"author":62,"featured_media":17033,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-37803","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/37803","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=37803"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/37803\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17033"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=37803"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=37803"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=37803"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}