Pound sterling rises in a low-volume trading session as global markets close for Christmas Day.
On Tuesday, the pound sterling (GBP) gained ground against its major counterparts. The British pound rises as investors mostly disregard a slight increase in the Bank of England’s (BoE) dovish forecasts for the coming year. Traders expect a 53 basis point (bps) interest rate cut in 2025, up from 46 bps following the BoE policy decision on Thursday.
Trades have fully priced in two interest rate cuts from the BoE next year.
BoE Dovish bets increased after three of the nine Monetary Policy Committee (MPC) members recommended lowering interest rates by 25 basis points, which was more than market investors expected. Investors saw the 6-3 vote split as a dovish buildup for the coming year, weighing heavily on the pound sterling.
After keeping interest rates constant in December, BoE Governor Andrew Bailey refrained from committing to a predetermined rate drop path. “Due to heightened uncertainty in the economy, we can’t commit to when or by how much we will cut rates in 2025,” said Mr. Chairman.
Contrary to market forecasts, Deutsche Bank analysts expect the BoE to announce four interest rate decreases next year, one in the first half and the others in the second half.
Daily market Update: Pound Sterling beats the US Dollar.
During Tuesday’s North American session, the pound sterling rose to around 1.2570 against the US dollar (USD). The GBP/USD pair is broadly consolidating as trade volume remains low during a holiday-shortened week marked by Christmas Eve and Boxing Day on Wednesday and Thursday, respectively.
The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, is likewise trading sideways near 108.15.
More broadly, the US dollar remains strong amid expectations that the Federal Reserve (Fed) will reduce interest rates gradually over the next year. Fed governors expect the central bank to deliver fewer interest rate decreases than originally expected amid a slowdown in the disinflation process and concern about the impact on President-elect Donald Trump’s economic policies include incoming immigration, trade, and taxation.
Fed policymakers expect fund rates to rise to 3.9% by the end of 2025.
According to a recent Fed dot plot, officials expect the federal funds rate to reach 3.9% by the end of 2025, implying that interest rates would be slashed more than once next year. According to the CME FedWatch tool, traders expect the central bank to keep interest rates unchanged in the current range of 4.25% to 4.50% for the January policy meeting.
Looking at the US economic calendar for the rest of the week, the only major economic indicator that could affect the US Dollar the Initial Jobless Claims for the week ending December 20, which are schedule to be release on Thursday. The number of individuals claiming jobless benefits for the first The time is predicted to be 218K, slightly lower than the previous release of 220K.
