The GBP/USD pair continued its recovery on Monday, approaching 1.2580 during the Asian trading hours. The move follows increased division among Bank of England (BoE) policymakers over the necessity of rate cuts to address a slowing economy. The BoE’s Monetary Policy Committee (MPC) voted 6-3 to keep interest rates unchanged, marking a larger-than-expected split. Trading volumes were lower than usual due to the upcoming New Year holiday.
Rising US Treasury yields, with the benchmark 10-year note reaching a seven-month high of 4.620% on Monday, are seen as supportive for the US Dollar (USD). In addition, expectations surrounding President-elect Donald Trump’s policies—looser regulations, tax cuts, tariff hikes, and stricter immigration—could spur inflation and potentially slow the pace of the US Federal Reserve’s (Fed) rate cuts, further bolstering the USD.
In December, the BoE kept its interest rate at 4.75% and maintained its guidance for “gradual” rate cuts next year. BoE Governor Andrew Bailey remarked, “We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy, we can’t commit to when or by how much we will cut rates in the coming year.” As expectations for more dovish moves from the BoE grow, the British Pound (GBP) could face downward pressure against the US Dollar in the near term.
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