The GBP/USD pair loses momentum near 1.3485 during the early European session on Monday, pressured by renewed US Dollar (USD) demand. The potential downside for a major pair might be limited, as the Bank of England (BoE) guided that monetary policy will remain on a gradual downward path.
The BoE’s Monetary Policy Committee decided to cut a quarter point in its benchmark interest rate to 3.75% at its December meeting, the first cut since last August. Governor Andrew Bailey said during the press conference that rates are likely to continue on a gradual downward path, but “how much further we go becomes a closer call” with each cut.
On the USD’s front, traders anticipate two rate cuts from the US Federal Reserve (Fed) in 2026 due to a cooling labor market and easing inflation. Financial markets are pricing in nearly an 18.3% odds that the US central bank will reduce the interest rates at its next policy meeting in January, according to the CME FedWatch tool. Firm Fed dovish bets could weigh on the Greenback and create a tailwind for the pair in the near term.
Technical Analysis:
In the daily chart, GBP/USD trades at 1.3486. The 100-day EMA edges higher and price holds above it, preserving the medium-term uptrend. A pullback would meet dynamic support at this average, keeping the broader bias intact. RSI sits at 66 (bullish) after easing from recent highs, pointing to firm momentum without an overbought signal. Initial support stands at the Bollinger middle band at 1.3393, with the 100-day EMA below at 1.3336. Holding above this zone would keep dips contained and the topside favored.
Bollinger Bands drift higher, with price entrenched in the upper half and approaching the upper band at 1.3547, indicating persistent bullish pressure while not overstretched. The bands have modestly widened in recent sessions, signaling firm momentum. A close above that barrier would open scope for an extension, while a rejection would leave room for consolidation toward the lower band at 1.3240.
(The technical analysis of this story was written with the help of an AI tool)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.