The GBP/USD pair is losing momentum near 1.3485 during the early European session on Monday, under pressure from renewed demand for the US Dollar (USD). Potential downside for a major pair may be limited, as the Bank of England (BoE) has indicated that monetary policy will remain on a gradual downward path.
The Bank of England’s Monetary Policy Committee decided to cut interest rates by a quarter of a percentage point to 3.75% at its meeting in December, the first cut since last August. Interest rates are likely to continue on a gradual downward path, but “how far we go becomes a closer decision” with each cut, Governor Andrew Bailey said during the news conference.
On the US dollar front, traders expect two interest rate cuts by the US Federal Reserve in 2026 due to a slowing labor market and easing inflation. Financial markets expect a roughly 18.3% chance that the US central bank will cut interest rates at its next policy meeting in January, according to the CME FedWatch tool. The Fed’s aggressive bets could weigh on the dollar and create tailwinds for the pair in the near term.
Technical analysis:
On the daily chart, the GBP/USD pair is trading at 1.3486. The 100-day moving average rises and the price stabilizes above it, maintaining the uptrend in the medium term. The pullback will encounter dynamic support at this average, keeping the broader bias intact. The RSI is at 66 (bullish) after pulling back from recent highs, indicating strong momentum below an overbought signal. Initial support stands at the middle Bollinger band at 1.3393, with the 100-day moving average below at 1.3336. Staying above this area would sustain the declines and favor the upside.
The Bollinger Bands are drifting higher, with the price consolidating in the upper half and approaching the upper band at 1.3547, indicating continued bullish pressure without being overly extended. The ranges have widened modestly in recent sessions, indicating strong momentum. A close above this barrier will open the way for an extension, while rejection will leave room for consolidation towards the lower band at 1.3240.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
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.
