Sterling starts New Year with sharp losses

The British pound has started 2025 with sharp losses. In the North American session, GBP/USD is currently trading at 1.2373, down 1.1% on the day.

British pound can’t find its footing

The US dollar has flexed its muscles in recent months and the pound has faltered, sliding 8% since October 1. The pound has fallen to its lowest level since April 2024 and the US dollar, backed by a strong US economy, could continue to pummel the struggling pound. The Fed signaled at the December meeting that it only plans to cut rates twice in 2025, half of the September estimate of four rate cuts.

The BoE ended 2024 on a whimper as it maintained the cash rate at 4.75% at the December meeting. The pause was expected but the vote split was a surprise at 6-3 compared to the forecast of 8-1. The fact that three MPC members voted for a quarter-point cut reflects significant support for the BoE to trim rates and that could mean a cut in February if the December inflation report is lower than expected. The BoE monetary policy summary said that policy would need to remain restrictive until the upside risk to inflation had eased and that the central bank would take a “gradual” approach to easing policy.

UK inflation rose to 2.6% from 2.3% in November. This is the highest level in eight months and the although the alarm bells won’t be ringing at the BoE, policy makers would like to see inflation move back towards the 2% target before cutting rates. The BoE holds its next meeting on Feb. 6 and the December CPI report, which will be released on Jan. 15, will be a critical factor in the BoE rate decision.

GBP/USD Technical

• GBP/USD has pushed below support at 1.2481 and 1.2444 and is testing support at 1.2380. The next support level is 1.2337
• 1.2545 is the next line of resistance

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