The GBP/USD pair is trading at 1.3460, down 0.30%. Last week, it reached nearly 1.3535 but couldn’t hold those gains. This drop reflects caution among traders before the Federal Open Market Committee (FOMC) Minutes are released. The US Dollar remains stable, with the Dollar Index around 98.10. Traders are eagerly waiting for details on the Federal Reserve’s future monetary policy. So far this year, the Fed has made three rate cuts, bringing the Federal Funds target range to 3.50%-3.75%.

Forecasts And Predictions

Predictions suggest a policy rate close to 3.4% by 2026, indicating only one more rate cut may happen. However, market tools estimate at least two more cuts by the end of 2026, showing differing expectations. The Pound Sterling is performing well against major currencies, benefitting from an environment where the Bank of England (BoE) is cautious about easing monetary policy. Recently, the BoE lowered its policy rate by 25 basis points to 3.75%. In the UK, inflation remained above the target at 3.2% in November. This prompts the BoE to be careful with its policy decisions. Future economic moves in the UK will likely focus on job market trends and GDP growth, with low job demand possibly affecting progress. With GBP/USD hovering around 1.3460, the market is awaiting a clear direction. The upcoming release of the Federal Reserve’s meeting minutes will be a key event that could clarify current uncertainties. This pause allows traders to prepare for the next steps in the new year.

Market Tensions And Opportunities

There’s a key tension between the Fed’s guidance and market expectations. Although the Fed’s forecasts from early December 2025 indicate just one more rate cut in 2026, the CME FedWatch Tool shows traders believe there’s over a 70% chance of at least two cuts by the end of next year. This disagreement presents an opportunity since the upcoming minutes might prompt the market to swiftly adjust its views. This uncertainty suggests that volatility in the US Dollar could rise significantly in January 2026. History shows that during similar periods of disagreement among central banks, like late 2021 before the Fed started its rate hikes, there were often sharp price movements as new information came out. Therefore, it might be wise to consider options strategies that can benefit from big moves in GBP/USD, regardless of direction. On the other end of the pair, the Bank of England’s cautious stance provides support for the Pound. The latest data from the Office for National Statistics (ONS) for November 2025 shows UK inflation is still high at 3.2%, well above the 2% target. This puts limits on how aggressively the BoE can cut rates. The differing policies, with the Fed likely to loosen more than the BoE, should continue to favor strength for the GBP against the USD. Additionally, uncertainty for the dollar is heightened by the upcoming announcement of a new Federal Reserve Chair in January 2026. During President Trump’s first term, he favored a more supportive monetary policy. The market expects that the new Chair will share this view, which may weigh on the dollar throughout 2026. Create your live VT Markets account and start trading now.

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