Pound Sterling price rises as traders evaluate BoE policy outlook
GBP/USD rebounds to 1.2550 amidst BoE easing projections
The Pound Sterling (GBP) edged higher against its major counterparts on Friday, reflecting cautious optimism among investors as they assess the Bank of England's (BoE) future policy moves. Following the BoE’s December meeting, where six of nine Monetary Policy Committee (MPC) members voted to maintain interest rates, traders raised their expectations for policy easing in 2025.
Current market projections suggest a 53-basis-point reduction in interest rates next year, up from the 46 basis points expected earlier, implying two likely 25-basis-point rate cuts.
Despite the dovish outlook, BoE Governor Andrew Bailey refrained from providing clear guidance on the policy path, citing economic uncertainties in the United Kingdom. In this context, the Pound Sterling rose to 1.2550 against the US Dollar (USD), supported by post-holiday thin trading and a modest pullback in the Greenback.
GBP/USD price movement (Nov 2024 - Dec 2024) Source: TradingView.
U.S. labor market data reinforces dollar strength
While the US Dollar Index (DXY) dipped to 108.00, the currency's outlook remains firm due to the Federal Reserve’s cautious approach to interest rate cuts. The Fed forecasts two rate reductions in 2025, down from the four predicted in September. A robust labor market supports this restrained policy stance, with Initial Jobless Claims falling unexpectedly to 219,000 last week, compared to expectations of 224,000.
Stubborn inflationary pressures and stronger-than-expected growth forecasts have also bolstered confidence in the USD. Market participants await key data releases, including revised S&P Global and ISM Manufacturing PMI estimates, to gauge the Dollar's trajectory further.
GBP/USD technical analysis highlights resistance levels
The GBP/USD pair remains under pressure, trading below critical Exponential Moving Averages (EMAs), which underscore a long-term bearish trend. Immediate support is identified at 1.2485, with a deeper decline likely toward 1.2300 if this level is breached. Conversely, a recovery faces stiff resistance at 1.2730, the December 17 high, which must be cleared to shift sentiment toward bullish territory.
The Pound Sterling's performance underscores the ongoing market focus on the diverging monetary policies of the BoE and the Fed. Its trajectory will hinge on economic developments and further central bank signals in 2025.
In our earlier analysis, we emphasized the critical importance of the 1.2500 support level for GBP/USD. The pair has since struggled to sustain upward momentum, reflecting the combined impact of dovish BoE expectations and strong USD fundamentals.
