GBP/USD Holds Steady Amid Fed-BoE Rate Divergence as Year-End Liquidity Thins

Thin Holiday Liquidity Keeps Markets Cautious
At the start of the week, GBP/USD trades around 1.3490, showing little direction as investors navigate the thin liquidity typical of the holiday season. After a period of volatility, the pair is consolidating as markets weigh the diverging monetary policies of the Bank of England (BoE) and the Federal Reserve (Fed).

Pound Faces Pressure Despite Gradual BoE Easing

The Pound remains under pressure despite expectations of a gradual easing by the BoE in 2026. While UK inflation has eased slightly from its mid-year peak, it still sits above the central bank’s 2% target, limiting the scope for aggressive rate cuts. Recent policy moves saw the BoE trim interest rates modestly, reflecting caution as economic growth remains near flat heading into year-end.

US Dollar Strengthens Amid Fed Speculation

Meanwhile, the US Dollar has regained some strength as markets anticipate a faster easing cycle from the Fed in the coming year. Investors are eyeing the upcoming release of the Fed’s policy meeting minutes, looking for clues on the pace of potential rate reductions and overall monetary policy direction.

Pound Shows Relative Strength Against NZD

Across major currencies, the Pound is performing relatively stronger against the New Zealand Dollar, while movements against other peers remain muted amid the subdued holiday trading environment. The market’s cautious stance reflects broader uncertainty as the year closes, with traders balancing expectations for interest rate adjustments on both sides of the Atlantic.

Outlook: Range-Bound Trading Likely

Looking ahead, analysts expect GBP/USD to remain range-bound until fresh economic data or policy signals emerge, with thin liquidity likely to keep swings moderate. Market participants are bracing for year-end volatility to remain low, even as speculation around monetary policy continues to shape investor sentiment.