- GBP/USD attracts some dip-buying on Thursday, albeit struggles to build on the move up.
- Bets for bigger Fed rate cuts, sliding US bond yields undermine the USD and lend support.
- Dovish BoE expectations and social unrest in the UK keep a lid on any gains for the GBP.
The GBP/USD pair once again shows some resilience below the 100-day Simple Moving Average (SMA) and attracts dip-buyers in the vicinity of over a one-month low touched earlier this week. Spot prices, however, struggle to capitalize on the uptick and currently trade with only modest intraday gains, around the 1.2700 round-figure mark.
The US Dollar (USD) comes under some renewed selling pressure in the wake of rising bets for bigger interest rate cuts by the Federal Reserve (Fed), which triggers to a fresh leg down in the US Treasury bond yields. This, in turn, offers some support to the GBP/USD pair, though a softer risk tone helps limit losses for the safe-haven buck and acts as a headwind.
The market sentiment remains fragile on the back of growing concerns about an economic downturn in China and a possible US recession. Apart from this, geopolitical risks stemming from the ongoing conflicts in the Middle East temper investors' appetite for riskier assets, which, along with dovish Bank of England (BoE) expectations, caps the GBP/USD pair.
In fact, the BoE lowered interest rate for the first time in more than four years, from a 16-year high to 5.0% last Thursday. The markets are also pricing in the possibility of two additional interest rate cuts by the end of this year. Apart from this, the ongoing riots in the UK warrant caution for the British Pound (GBP) bulls and positioning for any upside for the GBP/USD pair.
There isn't any relevant market-moving economic data due for release from the UK on Thursday, while the US economic docket features the usual Initial Weekly Jobless Claims later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the GBP/USD pair.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds above 1.0400 in quiet trading
EUR/USD trades marginally higher above 1.0400 in the second half of the day on Friday. The absence of fundamental drivers and thin trading conditions on the holiday-shortened week make it difficult for the pair to gather directional momentum.
GBP/USD recovers to 1.2550 area following earlier decline
GBP/USD regains its traction and trades in positive territory near 1.2550 after declining toward 1.2500 earlier in the day. Nevertheless, the cautious market mood limits the pair's upside as trading volumes remain low following the Christmas break.
Gold struggles to build on weekly gains, holds above $2,620
Gold enters a consolidation phase and trades below $2,630 on Friday after posting modest gains on Thursday. The risk-averse market atmosphere helps XAU/USD limit its losses as investors refrain from taking large positions heading into the end of the holiday-shortened week.
Bitcoin misses Santa rally even as on-chain metrics show signs of price recovery
Bitcoin (BTC) price hovers around $97,000 on Friday, erasing most of the gains from earlier this week, as the largest cryptocurrency missed the so-called Santa Claus rally, the increase in prices prior to and immediately following Christmas Day.
2025 outlook: What is next for developed economies and currencies?
As the door closes in 2024, and while the year feels like it has passed in the blink of an eye, a lot has happened. If I had to summarise it all in four words, it would be: ‘a year of surprises’.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.