GBP/USD has carved out a slightly higher range following the sterling-benign news flow since the inauguration of U.S. President Donald Trump, but it could remain capped until the administration provides clarity on trade and upcoming central bank meetings illuminate the path of global rates in 2025.
At 1.2330, cable remains near the top of its post-inauguration range of 1.2160-1.2376. Sterling is hindered by its falling 21-DMA at 1.2370 owing to diverging Fed-BoE policy expectations. LSEG's IRPR indicates near 70bp of BoE cuts in 2025 but only 39bp from the Fed. Short-term rate futures foresee U.S. rates landing at 4.11% by December and UK borrowing costs at 4.06%. Rates alone would dictate dollar outperformance versus sterling in 2025, but the global economic impact of any prospective U.S. tariffs may affect UK trade and growth, even if Britain avoids being directly targeted. With the Fed expected to hold steady on Jan. 29, traders will focus on guidance for clues at the depth and speed of future rate moves. The BOJ meets on Friday, the ECB and BOC at the end of the month and BoE on Feb. 6.
For now, the pound is likely to fare better versus the Canadian dollar and
euro as the BoC and ECB are expected keep rates well below the BoE.
GBP Chart:
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)