The Pound Sterling increased by 0.16% to about 1.3320 against the US Dollar during the European trading hours. This rise was supported by remarks from Bank of England officials who prefer a slow approach to easing monetary policy. The US Dollar fell slightly as traders wait for the Federal Reserve’s policy announcement, where a rate cut of 25 basis points, bringing the rate to a range of 3.50%-3.75%, is widely expected. According to the CME FedWatch tool, there’s an 87.6% chance of this rate cut. If it happens, this will be the third rate cut in a row due to worries about slow job growth in the US labor market. Fed Chair Jerome Powell mentioned that labor demand is decreasing, but a rate cut in December is not guaranteed. Meanwhile, Bank of England Deputy Governors are still concerned about inflation, favoring a cautious easing approach. From a technical standpoint, GBP/USD is trading at 1.3318, above its 20-day EMA, which indicates a short-term uptrend. The RSI is over 50, showing potential for further gains. Central banks aim to keep inflation around a 2% target by adjusting interest rates—either raising them to tighten or lowering to ease monetary conditions. Since the Fed’s 25 basis point rate cut is nearly certain, the market should focus on expected volatility around the policy statement and Jerome Powell’s press conference. The market’s response will likely depend more on forward guidance than on the cut itself. A hint at a pause or a more aggressive approach could quickly reverse the recent weakness of the US Dollar. The Fed is responding to a softening labor market, a trend we’ve observed since mid-2025. The latest Non-Farm Payrolls report for November 2025 showed only 155,000 jobs added, which was below expectations, confirming this slowdown. However, as US Core CPI inflation remains stubborn at around 3.7%, the Fed finds it challenging to ease policy aggressively. On the other hand, the Bank of England’s expected cut next week seems more cautious. This is motivated by a desire to proactively address a slowing economy rather than just reacting to new data. UK inflation has remained more consistent than in the US, which is why officials like Lombardelli and Ramsden are advocating for a gradual approach. This relatively hawkish stance from the BoE is a key reason why the Pound Sterling is outperforming the US Dollar, pushing GBP/USD to its current level of 1.3320. Given this divergence, we should prepare for continued but possibly bumpy strength in the GBP/USD pair. This easing phase in 2025 sharply contrasts with the aggressive rate hikes we saw in 2022 and 2023. Derivative traders might consider buying call options on GBP/USD to benefit from further increases while managing risk, especially if Powell’s comments disturb the market. The technical outlook supports this positive bias, with the pair comfortably above the 20-day exponential moving average at 1.3249. This level now acts as a crucial support level; as long as we stay above it, the path ahead looks favorable. If this support fails to hold after the Fed’s announcement, it could lead to a significant shift in momentum, with a possible drop back towards the 1.3026 area.

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