GBP/USD is trading with moderate gains around 1.3510 during the early European session on Tuesday. The British pound rose against the US dollar as the Bank of England (BoE) indicated that monetary policy will remain on a gradual downward path.
The British central bank cut its benchmark interest rate by 25 basis points to 3.75% at its meeting in December. 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. Financial markets believe the Bank of England will implement at least one rate cut in the first half of the year and are pricing in a roughly 50% probability of one second before the end of the year, according to Reuters.
Traders continue to price in the possibility of the Fed making further rate cuts in 2026, following the quarter-point cut introduced at its December meeting. Minutes from the Federal Open Market Committee (FOMC) meeting will be published later on Tuesday. Trading volumes are expected to remain weak ahead of the New Year holiday.
Technical analysis:
On the daily chart, GBP/USD is holding well above the bullish 100-day moving average at 1.3335, maintaining a bullish profile. It also remains north of the 20-day moving average, confirming trend support. The RSI (14) is at 69.87 near the overbought zone. The upper Bollinger band at 1.3550 caps the immediate advance. A daily close above this barrier will extend the upside, while the bias remains bullish above the moving average.
The Bollinger Bands narrowed modestly as the price stabilized just below the upper band, indicating lower volatility coupled with continued buying pressure. Initial support is in line with the 20-day middle band at 1.3410, followed by the lower band at 1.3270. A pullback to the intermediate range would attract buyers, while a break lower could expose the lower bound and slow the uptrend momentum.
(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.
