GBP/USD has recently experienced volatility and might continue to be volatile in the future. The Pound has been facing pressure from weak economic data from the U.K. and rising expectations of rate cuts in 2025 from the Bank of England. On the contrary, the U.S. Dollar has been strengthening against all major currencies because of the U.S. elections, strong economic data and hawkish fed.
The U.S. Dollar has gained more than 7% since the end of September, driven in part by rising expectations that the U.S. economy will grow faster under President-elect Donald Trump’s policies, while sticky inflation has decreased expectations about how aggressively the Fed will reduce interest rates.
After its policy meeting on December 18, the Federal Reserve now looks set to hold rates higher for longer than markets had expected, which drove U.S. Treasury yields higher.
The U.S. economy grew by 3.1% which exceeded expectations in Q3 which indicates that the U.S. economy is still strong with the labor market also indicating signs of strength despite high interest rates.
The Pound has been trending downwards by weak economic data. The U.K. economy contracted by 0.1% in October which was less than forecasted. This downturn was attributed to stagnation in the services sector and declines in manufacturing and construction. Chancellor Rachel Reeves emphasized the government’s commitment to fostering long-term economic growth despite these setbacks.
The Bank of England has signaled a dovish mood. Governor Andrew Bailey indicated the possibility of more aggressive rate cuts if inflation continues to show favorable trends. This has led markets to raise their expectations of a 25 basis point rate cut at the BoE’s next meeting in February.
The combination of the BoE’s dovish signals, weak UK economic data, and global geopolitical uncertainties has led to a bearish sentiment toward the pound. In contrast, the U.S. dollar has benefited from the Fed’s hawkish stance and positive economic indicators.
The Pound’s underperformance against the U.S. Dollar is influenced by a combination of domestic economic challenges, dovish monetary policy signals from the BoE, and heightened global geopolitical tensions. While some analysts see potential for the Pound to rebound, the prevailing economic and geopolitical environment suggests that the Pound may continue to face pressure in the near term.
Technical Analysis
Source: TradingView
Price is still in a strong downtrend with continuation of the formation of lower highs and lower lows. Price is stabilized around 1.253 and might continue downwards.
If bearish pressure carries on, price could continue its downtrend, with 1.245 level monitored as a potential support. If price can pull back, bulls may push the price back above 1.259 and might help the price rally again.
