The GBP/USD pair trades with mild gains around 1.3510 during the early European session on Tuesday. The Pound Sterling (GBP) strengthens against the US Dollar (USD) as the Bank of England (BoE) guided that monetary policy will remain on a gradual downward path.
The UK central bank cut its benchmark interest rate by 25 basis points (bps) to 3.75% at its December meeting. Governor Andrew Bailey said during the press conference that rates are likely to continue on a gradual downward path, but “how much further we go becomes a closer call” with each cut. Money markets believe the BoE will deliver at least one rate cut in the first half of the year and are pricing in nearly a 50% probability of a second before the year-end, according to Reuters.
Traders continue to price in the prospect of further rate cuts by the Federal Reserve (Fed) in 2026, following a quarter-point reduction delivered at the December meeting. The Federal Open Market Committee (FOMC) Minutes will be published later on Tuesday. Trading volumes are expected to remain thin ahead of the New Year holidays.
Technical Analysis:
In the daily chart, GBP/USD holds well above the rising 100-day EMA at 1.3335, preserving a bullish profile. It also remains north of the 20-day average, underscoring trend support. RSI (14) sits at 69.87 near overbought. The upper Bollinger Band at 1.3550 caps the immediate advance. A daily close above that barrier would extend the climb, while the bias stays bullish above the EMA.
Bollinger Bands have narrowed modestly as price holds just beneath the upper band, signaling reduced volatility alongside persistent buying pressure. Initial support aligns with the 20-day middle band at 1.3410, followed by the lower band at 1.3270. A pullback into the mid-band would meet buyers, while a break lower could expose the lower boundary and slow the uptrend’s momentum.
(The technical analysis of this story was written with the help of an AI tool)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.