Pound climbs versus its key counterparts as investors look beyond the BoE’s modest increase in dovish bets for 2025.
The pound sterling (GBP) rises versus its major counterparts on Monday, as investors mostly disregard a slight increase in the Bank of England’s (BoE) dovish forecasts for the coming year. Traders anticipate a 53 basis point (bps) fall in interest rates in 2025, up from 46 bps following the BoE policy decision on Thursday.
The revised UK GDP figures for Q3 indicate that the economy stayed flat.
BoE dovish bets surged after three outs Nine members of the Monetary Policy Committee (MPC) advocated lowering interest rates by 25 basis points, which was higher than market participants expected. Investors saw the 6-3 vote split as a dovish buildup for the coming year, weighing heavily on the pound sterling.
Market expectations for a 53 basis point reduction in interest rates in 2025 indicate at least two 25-basis-point rate cuts. Nonetheless, expectations for the number of interest rate cuts by the UK central bank are similar to those of the Federal Reserve (Fed) and lower than those of the European Central Bank (ECB), making the Pound Sterling an appealing bet in the long run.
On the contrary, analysts at Deutsche Bank expect the BoE to announce four interest-rate cuts Next year, one will be in the first half and the others in the second.
Meanwhile, figures released on Monday reduced the UK growth rate downward for the third quarter of the year, heightening concerns about the UK’s (UK) economic future. The Office for National Statistics (ONS) announced that the economy remained unchanged in the third quarter, compared to 0.4% growth in April-June and a 0.1% expansion previously predicted.
Daily market Update: Pound Sterling trades higher.
During Monday’s London session, the pound sterling consolidated around 1.2580 against the US dollar. The GBP/USD pair moves slightly higher as the US Dollar recovers modestly. The US Dollar Index (DXY), which measures the value of the greenback against six major currencies, recovers. to approximately 108.00.
The Greenback finds buyers as its broader outlook improves amid robust predictions that the Federal Reserve (Fed) would pursue a moderate policy-easing strategy next year. In the most recent dot plot, the Fed indicated only two interest rate reduction in 2025, compared to the four cuts forecast in September. According to the CME FedWatch tool, traders expect the central bank to keep interest rates unchanged in the range of 4.25%-4.50% during its January policy meeting.
According to the most recent comments by Fed members, stubborn inflation, better job market conditions than previously expected, and uncertainty about the impact of President-elect Donald Trump’s upcoming policies on the economy have pushed them to forecast fewer interest rate reduction for 2025.
Fed officials’ most recent comments indicate a reduced inclination to decrease interest rates in 2025 due to the uncertainties surrounding Trump’s policies.
Cleveland Fed President Beth Hammack, the only official who opposed the rate cut decision at the policy meeting on Wednesday, stated on Friday: “I prefer to hold policy steady until we see further evidence that inflation is resuming its path to our 2% objective.”
This week, thin trading volume due to Forex market holidays on Wednesday and Thursday for Christmas Day and Boxing Day, respectively, may keep the pair’s price action muted.
On the economic front, investors will focus on the United States (US) Durable Goods Orders data for November, which will be released on Tuesday. Orders are estimated to have declined by 0.4% after expanding by 0.3% in October.
