The GBP/USD pair settled near 1.3245 during the Asian session on Monday, as traders continue to digest the UK’s autumn budget. The potential downside for the major pair may be limited due to rising expectations of a rate cut from the Federal Reserve at the December meeting. The US November Manufacturing Purchasing Managers’ Index (ISM) report is scheduled for release later on Monday.
UK Chancellor Rachel Reeves unveiled the UK’s autumn budget last week, which includes tax rises and changes to business rates, benefits and pensions. The Office for Budget Responsibility (OBR) revised the UK’s 2025 growth forecast upwards, from 1.0% to 1.5% following the Budget announcement. However, the Office for Budget Responsibility lowered its growth estimate to 1.4% in 2026, and then to 1.5% in each of the following four years. The UK Autumn Budget 2025 could lead to a modest rise in the pound sterling (GBP) against the US dollar (USD) in the near term.
Traders are increasing their bets on a Fed rate cut amid uncertainty and dovish comments from Federal Reserve officials, which are dragging the US dollar lower and acting as a headwind for the pair. US Federal Reserve funds futures assign an implied chance of 87% for a 25 basis point rate cut at the Fed’s December monetary policy meeting, compared with a 71% chance the week before, according to the CME FedWatch tool.
Last week, Fed Governor Christopher Waller said available data suggests the labor market remains weak enough to warrant another quarter-point cut at the December meeting. Meanwhile, San Francisco Fed President Mary Daly indicated that she supports a rate cut next month because she has seen a sudden deterioration in the labor market, both of which are more likely and harder to manage than an outbreak of inflation.
Frequently asked questions about the pound sterling
The British Pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most popular foreign exchange (FX) trading unit in the world, accounting for 12% of all transactions, averaging $630 billion per day, according to data for 2022. The main trading pairs are GBP/USD, also known as “Cable”, which accounts for 11% of FX, GBP/JPY, or “Dragon” as traders know it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The single most important factor affecting the value of the pound sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its primary objective of “price stability” – a stable inflation rate of around 2%. The primary tool for achieving this is adjusting interest rates. When inflation is too high, the Bank of England will try to rein it in by raising interest rates, making it more expensive for individuals and businesses to obtain credit. This is generally positive for the pound, as higher interest rates make the UK a more attractive place for global investors to put their money. When inflation falls to a very low level, it is a sign that economic growth is slowing. In this scenario, the Bank of England would consider lowering interest rates to reduce the cost of credit so that companies borrow more to invest in growth-generating projects.
Data releases measure the health of the economy and can affect the value of the British pound. Indicators such as GDP, manufacturing PMIs, services and employment can all influence the direction of the pound. A strong economy is good for the pound. Not only does it attract more foreign investment, but it may encourage the Bank of England to raise interest rates, which will directly strengthen sterling. Otherwise, if economic data is weak, the British pound is likely to fall.
Another important data release for the British Pound is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a certain period. If a country produces highly sought-after exports, its currency will take full advantage of the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.
