The Pound Sterling is stable at about 1.3500 against the US Dollar as we wait for the FOMC minutes. Expectations suggest the Fed will cut interest rates by 50 basis points in 2026. Last time, they reduced rates to a range of 3.50%-3.75%. There is only one expected cut in 2027, keeping rates lower than previously thought. On Tuesday, the Dollar Index is around 98.00, which tracks the USD against six other currencies. President Trump will announce a new Fed Chair to replace Powell in January, likely favoring easier monetary policies.

Bank Of England’s Monetary Policy

The Bank of England (BoE) has cut rates to 3.75% and indicated that further gradual reductions may follow, as UK inflation fell to 3.2% in November. Labor market conditions and GDP growth in 2026 will influence BoE decisions. Meanwhile, labor demand in the US has weakened, affecting hiring due to higher social security contributions. Currently, GBP/USD is at 1.3506, facing potential resistance at 1.3623. The price has surpassed the 61.8% retracement level, hinting at more possible gains. The FOMC minutes will shed light on future US interest rate policies, impacting market reactions because news outlets won’t have early access. With the Pound Sterling steady around 1.3500 against the US Dollar, we focus on tonight’s FOMC minutes. There’s a clear gap between market expectations for a 50 basis point cut in 2026 and the Fed’s forecast of just one cut. We anticipate volatility, as these minutes might either confirm the market’s dovish outlook or support the Fed’s cautious stance. In this context, we see potential in short-term options strategies for the GBP/USD pair. If the minutes include dovish hints of quicker cuts, buying call options with a target near 1.3600 would be wise. On the other hand, if the tone is hawkish and highlights inflation concerns, put options could help guard against a pullback as the dollar strengthens.

Federal Reserve Chair Announcement

Looking ahead to January, the key event will be the announcement of the new Federal Reserve Chair. President Trump wants a leader who supports aggressive easing, which leans toward a dovish outlook for the dollar. This means any strength the US Dollar gains from tonight’s minutes may be short-lived, creating a selling opportunity in the following weeks. On the other side, the Bank of England’s cautious stance is essential. UK inflation is now at 3.2%, a notable improvement from the double-digit highs seen in 2022-2023, but still above the 2% target. This persistence is why the BoE is lowering rates more slowly than the Fed, which supports the Pound Sterling. We will closely monitor UK labor and GDP reports in early 2026 for direction. Strong UK economic data would strengthen the BoE’s cautious stance and could push GBP/USD higher, particularly if US political events lead the Fed to make more aggressive cuts. We have seen how differing central bank policies can drive currency trends throughout 2024 and expect this trend to continue. Technically, there is still room for GBP/USD to rise cautiously. This pair has steadily improved throughout 2025, moving away from the lows of previous years. After breaking the significant 1.3491 level, the next major resistance is around 1.3623. We expect dips to find support, creating buying opportunities as we enter the new year. Create your live VT Markets account and start trading now.

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