The Pound Sterling is trading steadily against major currencies, particularly around 1.3500 against the US Dollar in the last week of 2025. Economic forecasts indicate that the Bank of England will continue its moderate monetary easing strategy into 2026. The GBP/USD pair dropped briefly to about 1.3485 early on Monday due to increased demand for the US Dollar. However, any decline may be limited because expectations suggest a gradual easing of the BoE’s monetary policy.

Market Movements in Asian Trading Hours

During the Asian trading hours on Monday, the GBP/USD rose to around 1.3510, largely influenced by US Dollar fluctuations. This comes as traders expect the Federal Reserve to implement two additional rate cuts in 2026. Gold prices have fallen by 3%, trading below $4,400. This drop is linked to profit-taking and hopes for a Ukraine-Russia peace deal. Meanwhile, Bitcoin, Ethereum, and Ripple saw gains of about 3%, boosted by recent geopolitical developments. In 2026, advanced economies are expected to perform well, building on the resilience shown in 2025. The outlook for the crypto market remains positive, driven by new regulations and developments. With holiday trading volumes being low, the GBP/USD pair remains steady at around 1.3500. Such calm often precedes increased volatility in the new year when full market participation returns. Traders should take advantage of this quiet time to get ready for movements in January, rather than feeling overly secure.

Monetary Policy Divergence

Looking ahead, the spotlight will be on the difference in monetary policy between the Bank of England (BoE) and the Federal Reserve. We expect the BoE to take a cautious approach to rate cuts, while the market anticipates at least two significant reductions from the Fed in 2026. This dynamic will likely influence the direction of the GBP/USD pair in the first quarter. This expectation aligns with recent inflation data from 2025. Although UK inflation has decreased from its peak, it remains stubbornly high. In November 2025, the UK’s latest CPI was 2.9%, still above the BoE’s 2% target. In comparison, the US Core PCE for the same period was 2.4%, allowing the Fed to justify a quicker policy easing. We’ve seen similar situations before, especially from 2014 to 2016 when the Fed’s tightening cycle diverged sharply from the European Central Bank’s easing strategy. That difference led to a long-term trend, suggesting that a strong narrative emerging in early 2026 could lead to sustained movement in GBP/USD. It’s crucial to position ahead of that consensus. Given the typical low volatility at year-end, implied volatility for GBP/USD options is currently low. This makes strategies like long straddles or strangles appealing, allowing traders to profit from significant price swings in either direction. These strategies would benefit as the market gains clarity on the pace of rate cuts in the upcoming weeks. Create your live VT Markets account and start trading now.

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