Pound Sterling rises as markets price in cautious BoE easing cycle
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The British Pound (GBP) started the week with a robust recovery, reclaiming ground against its major counterparts after a sharp sell-off last Friday. Market participants are recalibrating their expectations for the Bank of England’s (BoE) monetary policy trajectory, anticipating a slow and gradual easing cycle, while a weaker US Dollar is providing further tailwinds for the GBP/USD pair.
BoE expected to tread carefully amid weak UK economic data
The Pound’s earlier weakness stemmed from disappointing economic releases. UK retail sales for October contracted by 0.7%, underperforming forecasts as consumers held back on spending ahead of fiscal measures announced in late October. Furthermore, the Composite PMI dropped to 48.8, falling below the 50.0 threshold that separates contraction from expansion, as both manufacturing and services sectors struggled.
Despite these signs of economic slowdown, traders are betting on the BoE maintaining a cautious approach to rate cuts. According to market pricing, the central bank is expected to hold rates at 4.75% in December, with a projected reduction to 4.0% by 2025. This cautious outlook is providing a floor for the Pound, as investors see the BoE aligning policy normalization with broader economic fragility.
Upcoming speeches from BoE Deputy Governor Clare Lombardelli and MPC member Swati Dhingra could offer crucial insights into the central bank’s forward guidance, shaping expectations for the December meeting and beyond.
GBP/USD recovery aided by US Dollar softness
The Pound’s rally has been amplified by a weaker US Dollar, driven by political and economic developments. President-elect Donald Trump’s announcement of Scott Bessent as Treasury Secretary helped ease market concerns about potentially disruptive economic policies. The Dollar Index (DXY) fell 0.5% to 107.00, while US Treasury yields also declined, with the 10-year yield dropping to 4.33%.
These factors supported GBP/USD, which reclaimed the 1.2600 level. However, the pair’s longer-term trajectory remains uncertain, with traders divided on the Federal Reserve’s next move. The CME FedWatch Tool indicates a 56% probability of a 25-basis-point cut in December, while 44% expect rates to remain steady. This divergence could create volatility in GBP/USD, especially as key levels come into play.
Technical outlook: GBP/USD at critical juncture
The GBP/USD pair has rebounded from the psychological support of 1.2500 but remains constrained by significant resistance levels. The 200-day Exponential Moving Average (EMA), positioned near 1.2800, continues to exert downward pressure on the pair, aligning with the broader bearish trend.
Momentum indicators suggest limited upside potential in the short term. The 14-day Relative Strength Index (RSI) rebounded from oversold territory but remains below the 40.00 mark, indicating a lack of bullish strength. Support is expected near May’s low of 1.2446, while resistance at 1.2715—last tested on November 20—will serve as a critical barrier. A sustained break above this level could signal the start of a medium-term reversal, though traders should remain cautious given the bearish backdrop.
Market implications: Tactical opportunities for traders
For traders, GBP/USD presents a range-bound environment with opportunities to capitalize on short-term price swings. A break above 1.2715 would open the door to further upside, with intermediate targets at 1.2800 and 1.2885. Conversely, failure to hold above 1.2500 could expose the pair to additional downside, with support at 1.2446 serving as a key risk level.
As the BoE and Fed navigate complex macroeconomic environments, the interplay between monetary policy expectations and technical levels will remain central to GBP/USD price action. Traders should focus on near-term catalysts, including BoE commentary and US economic data, to position effectively in this dynamic market landscape.
BoE expected to tread carefully amid weak UK economic data
The Pound’s earlier weakness stemmed from disappointing economic releases. UK retail sales for October contracted by 0.7%, underperforming forecasts as consumers held back on spending ahead of fiscal measures announced in late October. Furthermore, the Composite PMI dropped to 48.8, falling below the 50.0 threshold that separates contraction from expansion, as both manufacturing and services sectors struggled.
Despite these signs of economic slowdown, traders are betting on the BoE maintaining a cautious approach to rate cuts. According to market pricing, the central bank is expected to hold rates at 4.75% in December, with a projected reduction to 4.0% by 2025. This cautious outlook is providing a floor for the Pound, as investors see the BoE aligning policy normalization with broader economic fragility.
Upcoming speeches from BoE Deputy Governor Clare Lombardelli and MPC member Swati Dhingra could offer crucial insights into the central bank’s forward guidance, shaping expectations for the December meeting and beyond.
GBP/USD recovery aided by US Dollar softness
The Pound’s rally has been amplified by a weaker US Dollar, driven by political and economic developments. President-elect Donald Trump’s announcement of Scott Bessent as Treasury Secretary helped ease market concerns about potentially disruptive economic policies. The Dollar Index (DXY) fell 0.5% to 107.00, while US Treasury yields also declined, with the 10-year yield dropping to 4.33%.
These factors supported GBP/USD, which reclaimed the 1.2600 level. However, the pair’s longer-term trajectory remains uncertain, with traders divided on the Federal Reserve’s next move. The CME FedWatch Tool indicates a 56% probability of a 25-basis-point cut in December, while 44% expect rates to remain steady. This divergence could create volatility in GBP/USD, especially as key levels come into play.
Technical outlook: GBP/USD at critical juncture
The GBP/USD pair has rebounded from the psychological support of 1.2500 but remains constrained by significant resistance levels. The 200-day Exponential Moving Average (EMA), positioned near 1.2800, continues to exert downward pressure on the pair, aligning with the broader bearish trend.
Momentum indicators suggest limited upside potential in the short term. The 14-day Relative Strength Index (RSI) rebounded from oversold territory but remains below the 40.00 mark, indicating a lack of bullish strength. Support is expected near May’s low of 1.2446, while resistance at 1.2715—last tested on November 20—will serve as a critical barrier. A sustained break above this level could signal the start of a medium-term reversal, though traders should remain cautious given the bearish backdrop.
Market implications: Tactical opportunities for traders
For traders, GBP/USD presents a range-bound environment with opportunities to capitalize on short-term price swings. A break above 1.2715 would open the door to further upside, with intermediate targets at 1.2800 and 1.2885. Conversely, failure to hold above 1.2500 could expose the pair to additional downside, with support at 1.2446 serving as a key risk level.
As the BoE and Fed navigate complex macroeconomic environments, the interplay between monetary policy expectations and technical levels will remain central to GBP/USD price action. Traders should focus on near-term catalysts, including BoE commentary and US economic data, to position effectively in this dynamic market landscape.