GBP/USD gathers strength above 1.3450 on Fed rate cut bets, BoE’s gradual policy path

أسواق الإمارات اليومJanuary 2, 2026

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GBP/USD edges higher to near 1.3480 in Friday’s early Asian session.
Traders believe more USD weakness is coming if the next Fed Chair opts for deeper interest-rate cuts as anticipated.
The BoE expects rates to continue on a gradual downward path, but each subsequent cut will be a “closer call.”

The GBP/USD pair gathers strength to around 1.3480 during the early Asian session on Friday. Expectations of the US Federal Reserve (Fed) rate cuts this year weigh on the US Dollar (USD) against the Pound Sterling (GBP). Philadelphia Fed President Anna Paulson is set to speak later on the weekend.

The Greenback ended 2025 with the sharpest annual decline in eight years. With at least two rate reductions priced in for this year, the Fed’s policy path diverges from the United Kingdom (UK), dimming the USD’s appeal. Financial markets are pricing in nearly a 15.0% chance the Fed will cut interest rates at its next meeting in January, according to the CME FedWatch tool.

Furthermore, anticipations that US President Donald Trump will name a dovish successor to Fed Chair Jerome Powell, whose term ends this year, might contribute to the USD’s downside. Trump stated that he expects the next Fed Chairman to keep interest rates low and never “disagree” with him. The comments are likely to heighten concerns among investors and policymakers about Fed independence.

On the other hand, the Bank of England (BoE) expects rates to continue on a gradual downward path, which provides some support to the Cable. The UK central bank reduced interest rates from 4.0% to 3.75% at its December policy meeting, the lowest level in nearly three years. Governor Andrew Bailey said during the press conference that rates are likely to continue on a gradual downward path, but “how much further we go becomes a closer call” with each cut.

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