The GBP/USD pair remains supported at the upper limit as markets move through the final trading week of the year. The British pound has gained a bullish bias to keep price action on the upper side of the 1.3500 handle, although year-end holiday volumes are unlikely to see a significant advance in either direction as 2025 comes to a close.
The UK side of the economic data table remains weak this week, leaving low-impact market flows in the driver’s seat. Minutes from the Federal Reserve’s latest meeting will reach weak markets on Tuesday, serving as a final glimpse into the Fed’s wide range of policy discussions before the end of the calendar year.
Investors will look for signs of a pessimistic bent in policymakers’ internal decision-making rhetoric. Fed officials struck a dovish tone with their latest update to interest rate forecasts, with Federal Open Market Committee (FOMC) members anticipating a quarter-point cut in interest rates over the next two years. Rates market speculators expect the Fed to experience further rate cuts, with rate traders slated to cut rates twice by September of 2026.\
GBP/USD daily chart
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.
