The Pound Sterling is gaining against major currencies on the last day of 2025. The rise in the British currency is due to expectations that the Bank of England will cut rates less than other central banks. GBP/USD is steady for the second day, staying around 1.3460 during Asian trading hours on Wednesday. Technical analysis reveals that the pair is slightly below the lower edge of an upward trend channel, hinting at weakness in its bullish trend.

Year-End Trading Patterns

As 2025 wraps up, the Pound is dropping against the US Dollar, testing the 1.3450 support level and falling below the nine-day EMA. In related movements, EUR/USD has bounced back from recent lows in quieter trading, and the US Dollar Index has seen reduced gains in the calm holiday markets. The GBP/USD faces hurdles as it tests these support levels. At the same time, other important currency pairs are adjusting in year-end trading conditions. With the Pound challenging the 1.3450 support, we may see some short-term weakness as we approach the new year. The drop below the nine-day moving average is a technical sign that could draw sellers in the first full trading week. This indicates a cautious approach is advisable for the immediate future. However, the overall outlook remains positive, as there is a belief that the Bank of England will be slower to cut interest rates than other central banks in 2026. This difference in monetary policy should support the Pound during any significant downturns. The market’s expectations that rate differences will favor the Pound are crucial here.

Inflation’s Impact on Monetary Policy

This perspective is backed by recent data from late 2025, which shows UK inflation staying high. The November 2025 CPI report displayed inflation at 3.1%, well above the BoE’s 2% target, explaining their reluctance to signal rate cuts from the current 4.75%. In contrast, the US Core PCE index dropped to 2.4% in its last report, providing the Federal Reserve with more reasons to loosen policy. Given this clash between short-term technical signals and long-term fundamentals, traders might look into buying put options expiring in January 2026 to protect against further drops below 1.3450. Alternatively, this dip might also be a chance to establish longer-term bullish positions, like buying call options for March or April 2026. This could help traders ignore any immediate noise from holiday-thinned markets. Additionally, we should consider the low liquidity typical of year-end, which can worsen price fluctuations. We remember a similar trend at the start of 2024 when a brief technical decline was quickly reversed as institutional investors returned. The current low implied volatility makes option strategies like straddles appealing for capitalizing on potential price spikes once trading volume picks up in January. Create your live VT Markets account and start trading now.

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