GBP/USD remains under mild bearish pressure on Wednesday, hovering around the 1.3450 level amid subdued trading conditions ahead of the New Year. The pair is weighed down by renewed demand for the US Dollar, largely driven by end-of-year position adjustments and portfolio rebalancing. Thin liquidity during the holiday period is further exaggerating modest price moves, keeping Sterling on the defensive.
Markets are firmly expecting the US Federal Reserve to deliver a 25-basis-point interest rate cut at the conclusion of its two-day policy meeting later on Wednesday. Such a move would mark the third rate reduction this year, lowering the federal funds target range to 3.50%–3.75%. However, investors are increasingly focused on the tone of the accompanying statement and forward guidance rather than the cut itself.
Many traders anticipate what is being described as a “hawkish cut,” where the Fed lowers rates but signals caution about further easing. Persistent inflation risks and a still-resilient US labor market could prompt policymakers to hint at a pause in rate cuts in early 2026. Any indication of a more restrained easing path would likely underpin the US Dollar, reinforcing headwinds for GBP/USD in the near term.
On the UK side, the Pound continues to face its own set of challenges. Concerns surrounding higher overall tax burdens following the UK autumn budget have dampened sentiment toward Sterling. At the same time, easing inflation pressures and signs of a cooling labor market have strengthened expectations that the Bank of England may continue to loosen monetary policy.
Financial markets are now pricing in an approximately 88% probability that the BoE will cut interest rates by 25 basis points at its December meeting. This growing conviction reflects recent data suggesting that inflation momentum is fading, reducing the need for restrictive policy. As a result, policy divergence risks and cautious risk sentiment are likely to keep GBP/USD capped in the near term.
Trade Idea:
Sell GBP/USD on rebounds toward 1.3520, targeting 1.3350, with a stop above 1.3580, as USD strength and BoE rate-cut expectations continue to pressure the pair.