Sterling briefly loses value as BoE Bailey says it foresees four interest rate cuts in 2025

Sterling is moving sharply after BoE Governor Bailey predicted four interest rate cuts in 2025, expecting disinflation to become embedded.
Traders expect the BoE to keep interest rates steady at 4.75% at this monthly meeting.
Investors are waiting for a lot of macroeconomic data from the US and Fed Powell’s speech.

The pound sterling (GBP) came under selling pressure against all of its major competitors on Wednesday after Bank of England (BoE) Governor Andrew Bailey predicted four interest rate cuts in 2025 in an interview with the Financial Times (FT).

Andrew Bailey reiterated that interest rates should be reduced gradually and stressed the need for more action to bring down inflation, even though “the process of disinflation is deeply entrenched.” Asked about the impact of US President-elect Donald Trump’s tariffs on UK inflation, Bailey said the effects “cannot be easily predicted”.

Bailey gave no indication of likely interest rate action at the Dec. 19 monetary policy meeting, but investors expect the BoE to leave interest rates unchanged at 4.75%.

Market expectations for the BoE to keep interest rates steady stem from concerns that inflation in the UK will persist. The UK inflation report for October showed that the annual core consumer price index (CPI) – which excludes variable items – accelerated to 3.3% and services inflation rose to 5%. BoE officials closely monitor service sector inflation when deciding on interest rate policy.

Daily Market Change Summary: Pound Sterling Turns Upside Down Against the US Dollar

The pound sterling is broadly consolidating against the US dollar (USD) after facing selling pressure near 1.2700 during London trading hours on Wednesday. The GBP/USD pair is experiencing some movement as the US Dollar (USD) rises.
Investors will be paying close attention to Friday’s U.S. nonfarm payrolls (NFP) data as the Federal Reserve (Fed) began an easing cycle in September amid concerns about deteriorating labor demand, with high confidence that inflation will persist. on a sustainable path to the bank’s target of 2%.
During Wednesday’s session, investors will focus on Fed Chairman Jerome Powell’s speech at the New York Times’ DealBook Summit, which outlined recent interest rate guidance. According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 4.25%-4.50% is 74%, while the rest favor leaving them at their current levels.
As for the economy, on Wednesday investors will see November’s ADP employment change data in the US and the ISM Services Purchasing Managers’ Index (PMI). Economists expect the US private sector to create 150,000 jobs in November. recent jobs, i.e. much less than 233 thousand in October. Over the same period, the Services PMI is estimated to have increased at a slower pace to 55.5 compared to the previous release of 56.0. A value above 50.0 signals an enhance in economic activity.

Technical Analysis: Sterling falls from 20-day EMA

Sterling is facing sellers against the US dollar after mean reversal and is approaching the 20-day exponential moving average (EMA) near 1.2710. GBP/USD may fall further as its outlook remains bearish with all miniature and long-term exponential moving averages (EMAs) falling.

The 14-day relative strength index (RSI) is rebounding after oversold. However, the downward trend remains intact.

Looking down, the pair is expected to find a cushion near the rising trendline around 1.2500, which is plotted from the March 2023 low near 1.1800. On the other hand, the 200-day exponential moving average (EMA) around 1.2830 will act as key resistance.