Sterling Weakens Against US Dollar as Year-End Trading Winds Down

The Pound Sterling (GBP) weakened against the US Dollar (USD) on Monday, as the US Dollar rebounded in thin trading conditions ahead of the New Year holiday. The GBP/USD pair fell below 1.2550 after failing to sustain an intraday high above 1.2600.

The US Dollar Index (DXY) rose towards 108.30, poised to end the year with significant gains. The US Dollar has strengthened considerably in recent months, driven by expectations of inflationary policies under the Trump administration.

While the Federal Reserve (Fed) has cut interest rates this year, the US Dollar has remained resilient. The Fed has signaled a more gradual pace of monetary easing in 2025, citing stronger-than-expected economic growth and a slowdown in the disinflation trend.

However, the Fed has acknowledged the uncertainty surrounding the potential impact of the Trump administration’s policies on the US economy.

Pound Sterling Under Pressure Amidst Increased BoE Cut Expectations

The Pound Sterling faced pressure against major currencies on Monday as market expectations for interest rate cuts by the Bank of England (BoE) increased.

Traders now price in a larger rate cut path for the BoE in 2025 than previously anticipated. This shift in expectations follows the BoE’s recent decision to leave interest rates unchanged at 4.75%, with a 6-3 vote split among policymakers.

The BoE has been more cautious in its monetary policy easing compared to other major central banks, citing persistent inflationary pressures in the UK economy.

However, Goldman Sachs expects the BoE to continue cutting interest rates throughout 2025, anticipating a weaker labor market to eventually cool inflation.