The Pound Sterling (GBP) holds steady near its highest level in over a month, trading around 1.3350 against the US Dollar (USD) during Thursday’s European session. The GBP/USD pair remains well-supported as the Dollar stays under pressure amid strengthened expectations of a dovish Federal Reserve (Fed), while the Pound continues to benefit from last week’s UK budget announcement.
The US Dollar Index (DXY), which measures the Greenback against six major peers, trades near a fresh monthly low of 98.80, touched on Wednesday.
According to the CME FedWatch Tool, markets now price an 89% chance of a 25 basis-point rate cut at the Fed’s December meeting, up from 83% a week earlier. Expectations for policy easing have grown as US labour market conditions worsen, partly linked to the expanding global adoption of Artificial Intelligence (AI).
Data released on Wednesday showed the US ADP report indicating that private employers cut 32,000 jobs in November, missing forecasts for a 5,000 job increase. Weakening labour demand typically strengthens the case for the Fed to adopt a more accommodative stance.
On the other hand, the US ISM Services PMI unexpectedly rose to 52.6 in November, beating expectations of a slight decline to 52.1 from October’s 52.4.
Daily Digest Market Movers: Pound’s rally may face resistance on dovish BoE outlook
The Pound Sterling extends its gains against major currencies on Thursday, continuing the upward momentum triggered by the UK budget announcement on November 26.
Analysts noted that the government’s decision to avoid imposing major tax burdens and its commitment to no new borrowing for day-to-day spending helped restore confidence in the British currency.
However, economists at Goldman Sachs warn that the current rebound may be short-lived, given the UK’s uncertain economic outlook and rising expectations that the Bank of England (BoE) could ease monetary policy sooner than previously anticipated.
“We believe the softening trend in UK economic data and the likelihood of faster-than-expected BoE easing remain key drivers of potential Sterling underperformance,” they said.
Markets expect the BoE to cut interest rates by 25 basis points to 3.75% at its December 18 policy meeting amid ongoing labour market deterioration.
Despite these expectations, BoE policymaker Megan Greene recently said she would only support rate cuts if labour markets and consumer spending weaken further.
Looking ahead, GBP/USD will take cues from the preliminary Michigan Consumer Sentiment Index and inflation expectations for December, due on Friday. The US PCE Price Index for September will also be released the same day, though its influence on rate-cut expectations is likely to be limited due to the data’s outdated nature.
