Pound strengthens ahead of Fed policy decision
The British Pound (GBP) rose 0.16% against the US Dollar (USD) on Wednesday during European trading, reaching 1.3320. This gain came as the US Dollar weakened under dovish expectations, with traders cautiously awaiting the Federal Reserve’s monetary policy announcement at 19:00 GMT.
The US Dollar Index (DXY), which tracks the value of the dollar against six major currencies, was down 0.1% at 99.10 at the time of writing.
The US Dollar is under pressure as markets are nearly certain the Federal Reserve will cut interest rates by 25 basis points, bringing the target range to 3.50%–3.75%. According to CME’s FedWatch tool, the probability of a rate cut at this meeting is 87.6%—marking the third consecutive cut by the Federal Reserve.
Dovish expectations are rooted in concerns about the United States labor market, where job growth has shown signs of weakness in recent months. At the October policy meeting, Federal Reserve Chair Jerome Powell acknowledged that “demand for labor has clearly weakened.” However, in the previous 2026 meeting, he strongly opposed a rate cut, stating: “A December cut is not certain, far from it.”
In late November, New York Fed President John Williams also warned about downside risks to employment, but unlike Powell, he noted there was still room for further rate cuts since monetary policy remains relatively restrictive.
Traders will closely watch the Fed’s policy statement, dot plot, and Powell’s press conference on Wednesday for fresh clues about the monetary outlook. Still, it is unlikely the Federal Reserve will adopt an aggressive easing stance, as inflation has remained above the 2% target for an extended period.
The British Pound gained against major currencies on Wednesday as members of the Bank of England’s Monetary Policy Committee (MPC) supported a gradual easing of monetary restrictions.
On Tuesday, Deputy Governors Clare Lombardelli and Dave Ramsden backed a gradual rate-cutting cycle, warning that inflation risks remain tilted to the upside.
Lombardelli told the Treasury Committee: “I am more concerned about upside inflation risks,” adding she was less convinced than other members about how restrictive current policy is.
Ramsden also stated that “gradual removal of policy restrictions remains appropriate,” allowing the MPC to carefully balance inflation risks.
At next week’s policy meeting, the Bank of England is expected to cut rates by 25 basis points, bringing them to 3.50%–3.75%.
Investors will also pay attention to remarks from Andrew Bailey, Governor of the Bank of England, in a recorded interview on financial stability at the Financial Times Global Boardroom conference in London.
In fiscal policy, UK Chancellor Rachel Reeves announced Wednesday that capital gains tax will not be applied to primary residences during this parliamentary term.
On the daily chart, GBP/USD trades around 1.3318. The price is above the 20-day EMA at 1.3249, maintaining short-term bullish momentum. The EMA has turned upward in recent sessions, providing dynamic support near that level.
The descending trendline from the 1.3726 high on September 17 was broken at 1.3026, removing resistance pressure and reinforcing the bullish bias.
The Relative Strength Index (RSI) stands at 58.9, rising above 50, confirming bullish momentum without overbought risk.
If the price holds above the 20-day EMA at 1.3249, buyers may extend the rally. Otherwise, a correction toward the broken trendline near 1.3026 is possible.