The GBP/USD is having a hard time holding above 1.3200 in early European trading. This comes after a drop from five-week highs of 1.3276. The Pound Sterling is weak due to expectations of a lower interest rate from the Bank of England on December 18, especially when compared to a stronger US Dollar. On Monday, GBP/USD fell by about 0.25%, moving back from a resistance level, which could lead to more selling. Chancellor Rachel Reeves is under fire for the UK’s budget issues, even though the Office for Budget Responsibility reported an unexpected surplus thanks to high wage growth and tax revenues.

Pound Sterling Outlook

The GBP/USD pair gained slightly, rising over 0.20% as more traders bet on a possible rate cut by the Federal Reserve. This speculation was encouraged by the potential nomination of Kevin Hassett as Jerome Powell’s successor. However, US data revealed a continued decline in business activity for the ninth month in a row, with the ISM Manufacturing PMI dropping to 48.2 and employment figures falling from 46 to 44. Treasury yields decreased as investors considered possible easing actions from central banks. Legal disclaimers emphasize the importance of personal research and the risks involved in trading, with FXStreet sharing information for informational purposes only. At present, the GBP/USD pair is facing conflicting pressures. On one side, high expectations for a Bank of England (BoE) rate cut on December 18 are compounding the pound’s weakness, with markets pricing in an 85% chance of a cut. This is particularly concerning as the pair slips from its recent high of 1.3276. The likelihood of a BoE rate cut is increasing, which will likely put downward pressure on sterling in the short term. Recent data from November 2025 shows UK inflation at 2.5%, with Q3 GDP growth stagnating. This indicates a slowing economy, giving the bank a reason to make a move. Furthermore, ongoing political issues regarding the government’s budget add more risk to the UK economy, which could keep the pound vulnerable.

USD Headwinds

Nonetheless, the US Dollar also faces challenges that prevent a rapid decline in GBP/USD. The US ISM Manufacturing data for November was also weak at 48.2, and last month’s Non-Farm Payrolls report indicated a cooling labor market. Consequently, the CME FedWatch Tool now shows a 70% chance that the Federal Reserve will cut rates in its own meeting next week. For derivative traders, this “race to cut” between central banks signals a period of high volatility instead of a clear trend. Implied volatility in GBP/USD options has increased, reflecting market uncertainty ahead of the two important central bank meetings this month. This situation may favor strategies that benefit from price fluctuations, like long straddles, rather than straightforward directional bets. The key events to monitor are the Fed’s decision next week and the BoE’s meeting on December 18. Until we gain more clarity from these meetings, the pair will likely continue to struggle around the 1.3200 mark. Traders should stay alert, as the currency’s direction will depend on which central bank hints at a more aggressive easing cycle. Create your live VT Markets account and start trading now.

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