GBP/USD rebounds following Fed’s third straight rate trim

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GBP/USD punched a fresh hole into seven-week highs on Wednesday, rising back into the 1.3400 neighborhood after the Federal Reserve (Fed) delivered a widely expected third straight interest rate cut.

GBP/USD launched back into the bullish side on Wednesday.
The Fed delivered a third straight interest rate cut as many investors expected.
Markets are brushing off the Fed’s cautious tone to bet on further rate cuts.
Pound flows remain bolted to broad-market dynamics until next week’s UK data dump.

GBP/USD punched a fresh hole into seven-week highs on Wednesday, rising back into the 1.3400 neighborhood after the Federal Reserve (Fed) delivered a widely expected third straight interest rate cut. Fed Chair Jerome Powell gave a particularly cautious showing, hinting that the Fed could be poised for another extended “wait and see” period. Global markets largely brushed off the Fed head’s warnings, and rate markets are already pricing in a faster pace of rate cuts over the next two years than the Fed itself expects.

Although the Fed projected only one cut for next year, Chair Jerome Powell signaled that rate hikes are essentially off the table, a stance traders welcomed. Futures markets reacted immediately, pricing in a strong chance of two or more cuts in 2026. Stocks had drifted sideways heading into this final meeting of the year, but the Fed’s decision aligned with expectations and helped stabilize sentiment.

The remainder of the week is largely lacking in meaningful economic events, but that all ends next week. Cable traders will be staring down the barrel of four straight days of high-impact data releases from next Tuesday, starting with the latest rolling three-month UK labor statistics and global Purchasing Managers Index (PMI) survey results. Wednesday brings the latest UK Consumer Price Index (CPI) inflation figures, and the real calendar-rattler will be the Bank of England’s (BoE) latest interest rate call, slated for Thursday. UK Retail Sales figures are trailing behind the BoE, and will close out the week’s UK data docket on Friday.

GBP/USD daily chart

widely expected

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.