The Pound Sterling slightly decreased against the US Dollar by the end of 2025, trading around 1.3455 during the European session. Despite a generally strong performance against major currencies, including the New Zealand Dollar, it faced challenges from a rising US Dollar.<\/p>\n
The Bank of England recently lowered interest rates by 25 basis points to 3.75% and hinted at gradual rate reductions. It anticipates inflation will drop to around 3% in the first quarter of 2026 and nearer to 2% by the second quarter.<\/p>\n
In the UK, the labour market showed weakness, with a 5.1% unemployment rate as of October 2025. Employers were hesitant to hire due to increased social security contributions.<\/p>\n
The US Federal Open Market Committee indicated a further rise in the US Dollar Index, reaching a high near 98.35. The FOMC suggests potential interest rate cuts amid weakened labour conditions, with a 76.1% chance for a 50 basis point cut in 2026.<\/p>\n
Technical analysis shows GBP\/USD holding above its 20-day EMA at 1.3410 with a positive near-term bias. The RSI at 60 supports this trend, but resistance at 1.3494 challenges potential gains.<\/p>\n
The key takeaway for us is the growing difference between the Bank of England’s (BoE) path and the Federal Reserve’s. The BoE is signaling a very slow pace for rate cuts, while markets are pricing in at least two full cuts from the Fed in 2026. This policy divergence is a strong fundamental reason to favour the Pound over the US Dollar in the first quarter of the new year.<\/p>\n
However, we must watch the UK’s weak labour market, as the unemployment rate has now hit 5.1%. Recent data we\u2019ve seen from the Office for National Statistics this month showed job vacancies have fallen for a sixth consecutive quarter, confirming this cooling trend. For traders, this could mean selling out-of-the-money GBP\/USD call options with strike prices above 1.3600 to hedge against the possibility that domestic economic weakness will cap the Pound’s rally.<\/p>\n
On the US side, the upcoming announcement of a new Fed Chair in January is a major source of potential volatility. Looking back, we saw how market volatility spiked in early 2018 during the transition from Yellen to Powell, leading to sharp, unexpected moves in the Dollar Index. To prepare, we should consider buying options straddles on the US Dollar Index (DXY) to profit from a large price swing in either direction once the decision is announced.<\/p>\n
Technically, the GBP\/USD pair is pressing against resistance at 1.3494, a level that has capped gains previously. A sustained move above this could trigger a larger rally, making short-term call options with a 1.3500 strike price for a late January expiry look attractive. This strategy allows us to capture potential upside from a breakout while limiting our risk to the premium paid.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Pound Sterling dips to 1.3455 as Bank of England cuts rates; US Dollar strength limits gains.<\/p>\n","protected":false},"author":62,"featured_media":17036,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-38039","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\/38039","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=38039"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/38039\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17036"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=38039"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=38039"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=38039"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}