Pound Sterling gains momentum above 1.3250 as traders brace for Fed, BoE rate decisions

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The GBP/USD pair gains momentum around 1.3255 during the early European session on Monday, bolstered by a weaker US Dollar (USD). The major pair currently trades near its lowest since December 2025.

GBP/USD strengthens to near 1.3255 in Monday’s early Asian session.
The Fed is likely to keep rates unchanged at its March meeting on Wednesday.
The BoE is widely expected to maintain the rates on Thursday.

The GBP/USD pair gains momentum around 1.3255 during the early European session on Monday, bolstered by a weaker US Dollar (USD). The major pair currently trades near its lowest since December 2025. Traders might turn cautious ahead of the US Federal Reserve (Fed) and the Bank of England (BoE) interest rate decisions later this week.

The Fed is widely expected to hold the benchmark federal funds rate steady at its current range of 3.50%–3.75% during its upcoming March meeting on Wednesday. Due to persistent inflation risks, many analysts have pushed back expectations for the next rate cut to September.

"The war ... poses downside risk to economic growth and upside risks to inflation, so central bank responses will very much depend on the recent context, specifically whether inflation has been above, on, or below target," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

The UK central bank is anticipated to keep interest rates on hold at 3.75% when it meets on Thursday. Oxford economists said a worst-case scenario where oil rises to $140 a barrel would drive inflation much higher and send the UK economy into a mild recession.

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.