Introduction to GBP/USD
The GBP/USD pair has been experiencing a loss of momentum near 1.3485 during the early European session on Monday. This is largely due to renewed US Dollar (USD) demand. However, the potential downside for this major pair might be limited, given the Bank of England’s (BoE) guidance that monetary policy will remain on a gradual downward path.
Bank of England’s Monetary Policy
The BoE’s Monetary Policy Committee decided to cut a quarter point in its benchmark interest rate to 3.75% at its December meeting, which was the first cut since last August. Governor Andrew Bailey stated 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. This decision could play a significant role in shaping the future of the GBP/USD pair.
US Federal Reserve’s Impact on USD
On the USD’s front, traders anticipate two rate cuts from the US Federal Reserve (Fed) in 2026 due to a cooling labor market and easing inflation. Financial markets are pricing in nearly an 18.3% odds that the US central bank will reduce the interest rates at its next policy meeting in January, according to the CME FedWatch tool. Firm Fed dovish bets could weigh on the Greenback and create a tailwind for the pair in the near term.
Technical Analysis
Daily Chart Overview
In the daily chart, GBP/USD trades at 1.3486. The 100-day EMA edges higher and price holds above it, preserving the medium-term uptrend. A pullback would meet dynamic support at this average, keeping the broader bias intact. RSI sits at 66 (bullish) after easing from recent highs, pointing to firm momentum without an overbought signal.
Support and Resistance Levels
Initial support stands at the Bollinger middle band at 1.3393, with the 100-day EMA below at 1.3336. Holding above this zone would keep dips contained and the topside favored. Bollinger Bands drift higher, with price entrenched in the upper half and approaching the upper band at 1.3547, indicating persistent bullish pressure while not overstretched.
Understanding the Pound Sterling
What is the Pound Sterling?
The Pound Sterling (GBP) is the oldest currency in the world, dating back to 886 AD, and is 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.
Factors Influencing the Pound Sterling
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. Data releases, such as GDP, Manufacturing and Services PMIs, and employment, can also impact the value of the Pound Sterling.
Conclusion
In conclusion, the GBP/USD pair’s momentum near 1.3485 has been influenced by the renewed USD demand, but the BoE’s monetary policy guidance could limit the potential downside. The US Federal Reserve’s anticipated rate cuts in 2026 could weigh on the Greenback, creating a tailwind for the pair. Technical analysis indicates a preserved medium-term uptrend, with initial support at the Bollinger middle band. Understanding the factors that influence the Pound Sterling, including monetary policy and data releases, is crucial for predicting its future movements. As the global economy continues to evolve, the GBP/USD pair will likely remain a significant focus for traders and investors alike.
