Pound Sterling slumps against USD as Fed sees fewer interest rate cuts in 2025.

The Pound Sterling falls against the US Dollar as the latter bounces back, with Fed officials signaling fewer rate cuts in 2025.
Latest commentary by Fed officials shows less willingness to cut interest rates in 2025 amid uncertainty surrounding Trump’s policies.
Revised UK GDP estimates for Q3 show that the economy remained flat.

The Pound Sterling (GBP) declines to near the psychological support of 1.2500 against the US Dollar (USD) in Monday’s North American session. The GBP/USD pair falls sharply as the US Dollar rebounds strongly on Monday after a sharp downside move on Friday. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, recovers to near 108.10.

The Greenback discovers buyer’s interest as its broader outlook is upbeat amid firm expectations that the Federal Reserve (Fed) will follow a moderate policy-easing approach next year. In the latest dot plot, the Fed signaled only two interest rate cuts in 2025 against the four cuts projected in September. For January’s policy meeting, traders are pricing in that the central bank will leave interest rates unchanged in the range of 4.25%-4.50%, according to the CME FedWatch tool.

The latest commentaries by Fed officials have shown that stubborn inflation, better labor market conditions than previously anticipated, and uncertainty over the impact of President-elect Donald Trump’s incoming policies on the economy forced them to guide fewer interest rate cuts for 2025.

Cleveland Fed President Beth Hammack, the only official who dissented against the rate-cut decision in the policy meeting on Wednesday, said on Friday: “I prefer to hold policy steady until we see further evidence that inflation is resuming its path to our 2% objective.”

This week, thin trading volume due to holidays in Forex markets on Wednesday and Thursday on account of Christmas Day and Boxing Day, respectively, could keep the pair’s price action more muted.

On the economic front, investors will focus on the United States (US) Durable Goods Orders data for November, which will be released on Tuesday. Orders are estimated to have declined by 0.4% after expanding by 0.3% in October.

Daily digest market movers: Pound Sterling drops as BoE dovish bets accelerate

The Pound Sterling weakens against its major peers on Monday. The British currency drops amid an increase in Bank of England’s (BoE) dovish bets for the next year. Traders see a 53-basis points (bps) reduction in interest rates in 2025, up from 46 bps after the BoE policy announcement on Thursday.
BoE dovish bets accelerated after three out of nine Monetary Policy Committee (MPC) members proposed reducing interest rates by 25 bps, more than the one projected by market participants. Investors considered the 6-3 vote split as a dovish buildup for the next year, which weighed heavily on the Pound Sterling.
Market expectations for 53 bps reduction in interest rates in 2025 suggest that there will be at least two 25-basis-points rate cuts. Still, speculation for the number of interest rate cuts by the UK central bank is similar to that of the Federal Reserve (Fed) and fewer than those expected from the European Central Bank (ECB), making the Pound Sterling an attractive bet in the broader term.
On the contrary, analysts at Deutsche Bank expect the BoE to announce four interest-rate cuts next year, one coming in the first half and the rest in the second half.
Meanwhile, data released on Monday downwardly revised the UK growth rate for the third quarter of the year, raising concerns over the United Kingdom’s (UK) economic outlook. The Office for National Statistics (ONS) reported that the economy remained stagnant in the third quarter, against the 0.4% growth in the April-June period and less than the 0.1% expansion previously estimated.