Pound Sterling briefly drops as BoE Bailey forecasts four interest rate cuts in 2025

• The Pound Sterling experiences a whipsaw move after BoE Governor Bailey predicted four interest-rate cuts in 2025 as he expects the disinflation process to be embedded.
• Traders expect the BoE to keep interest rates steady at 4.75% at this month’s meeting.
• Investors await a slew of US economic data and Fed Powell’s speech.

The Pound Sterling (GBP) gives up some gains against its peers on Wednesday after Bank of England (BoE) Governor Andrew Bailey forecasted four interest-rate cuts in 2025 in an interview with Financial Times (FT).

Andrew Bailey reiterated that interest rates should be lowered gradually and emphasized the need to do more to bring inflation down even though the “disinflation process is well embedded”. When asked about the impact of tariffs by US President-elect Donald Trump on the United Kingdom (UK) inflation, Bailey said that these effects “are not straightforward to predict.”

Bailey didn’t guide about the likely interest rate action in the monetary policy meeting on December 19, but traders expect the BoE to leave interest rates unchanged at 4.75%.

Market expectations for the BoE to keep interest rates steady have been prompted by fears of United Kingdom (UK) inflation remaining persistent. UK’s inflation report for October showed that the annual core Consumer Price Index (CPI) – which excludes volatile items – accelerated to 3.3% and the service inflation rose to 5%. Inflation in the services sector is closely tracked by BoE officials for decision-making on the interest rate policy.

Daily digest market movers: Pound Sterling ticks lower against US Dollar

• The Pound Sterling edges lower against the US Dollar (USD) after facing selling pressure near 1.2700 in London trading hours on Wednesday. The GBP/USD pair is experiencing some whipsaw moves as the US Dollar (USD) rises.
• Investors will pay close attention to the US Nonfarm Payrolls (NFP) data on Friday as the Federal Reserve (Fed) started the policy-easing cycle in September amid worries over deteriorating labor demand, with high confidence over inflation remaining on a sustainable path to the bank’s target of 2%.
• In Wednesday’s session, investors will focus on Fed Chair Jerome Powell’s speech at the New York Times DealBook Summit for fresh guidance on interest rates. The probability for the Fed to cut interest rates by 25 basis points (bps) to 4.25%-4.50% is at 74%, while the rest favors leaving them unchanged at their current levels, according to the CME FedWatch tool.
• On the economic front, investors will look at the US ADP Employment Change and the ISM Services Purchasing Managers’ Index (PMI) data for November on Wednesday. Economists expect the US private sector to have added fresh 150K jobs in November, significantly lower than 233K in October. In the same period, the Services PMI is estimated to have grown at a slower pace to 55.5 from the prior release of 56.0. A figure above 50.0 signals an expansion in economic activity.

Technical Analysis: Pound Sterling faces selling pressure near 20-day EMA

The Pound Sterling faces sellers against the US Dollar after a mean-reversion move to near the 20-day Exponential Moving Average (EMA) around 1.2710. The GBP/USD pair could fall further as its outlook remains bearish, with all short-to-long-term Exponential Moving Averages (EMAs) sloping downwards.

The 14-day Relative Strength Index (RSI) rebounds after turning oversold. However, the downside bias is still intact.

Looking down, the pair is expected to find a cushion near the upward-sloping trendline around 1.2500, which is plotted from March 2023 low near 1.1800. On the upside, the 200-day Exponential Moving Average (EMA) around 1.2830 will act as key resistance.