The GBP/USD fell to about 1.3365 during early European trading on Thursday. This decline followed the US Federal Reserve’s decision to lower the key interest rate by a quarter-point, leading to a rebound in the US Dollar (USD). The Fed’s recent rate cut is its third this year, with indications of a possible pause soon. Markets suggest there’s almost an 88% chance that the Bank of England (BoE) will cut its rate next week due to declining inflation.

The Fed’s Plan

The Fed Chair stressed the importance of assessing how the recent cuts affect the US economy. Updated economic forecasts suggest there may be one more rate cut next year, depending on new data. The Pound Sterling, a longstanding and widely traded currency, is shaped by BoE actions focused on keeping inflation stable around 2%. GBP’s value can change based on economic indicators like GDP, trade balance, and Purchasing Managers’ Index (PMI). A strong trade balance, where exports surpass imports, may strengthen the currency. In contrast, weak economic data could lead the BoE to lower rates, negatively affecting GBP. As of December 11, 2025, the British Pound is weakening against the US Dollar as the market expects a rate cut from the Bank of England (BoE) next week. Recent inflation data from the UK for November showed a decrease to 2.1%, closer to the BoE’s target, allowing them to justify easing their policy. This is a sharp contrast to the situation in late 2019, when both central banks were in an easing cycle.

BoE’s Monetary Policy

In contrast, the US Federal Reserve decided to keep its interest rate unchanged during its meeting yesterday, noting still-high inflation at 3.0% and a strong labor market. This growing divergence between the dovish BoE and the more cautious Fed is pushing down the GBP/USD pair, with the US dollar gaining support from the widening interest rate gap. For those in the derivatives market, this situation suggests preparing for potential further declines in the pound over the coming weeks. Increased volatility is expected around the BoE’s announcement, making strategies like buying GBP/USD put options a good way to potentially profit from a drop while managing risk. We should also pay attention to the US weekly jobless claims data later today for any signs of weakness in the American economy, but central bank policy remains the main driver for this currency pair. Create your live VT Markets account and start trading now.

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