The pound sterling is weakening at the beginning of the up-to-date year due to the prospect of significant interest rate cuts by the BoE

Sterling is trading weakly against its main competitors as Goldman Sachs analysts expect the BoE to make four interest rate cuts this year.
The US dollar is near a two-year high as the Fed is expected to cut interest rates less this year than previously expected.
Investors expect a series of data from the US labor market on Thursday, which will include up-to-date Fed policy guidelines.

The pound sterling (GBP) weakened against its main competitors on Thursday on rising expectations that the Bank of England (BoE) will apply less gradual interest rate cuts this year.

The BoE cut its key interest rate by 50 basis points (bps) to 4.75% in 2024. The pace of policy easing by the BoE has been tardy compared to its counterparts in Europe and North America, as inflation in the services sector in the United Kingdom (U.K. ) remained very persistent due to unyielding wage growth.

However, interest rate cuts are expected to be slightly faster this year as the slowdown in labor demand reduces price pressure. In a note this week, Goldman Sachs analysts said the BoE will cut interest rates quarterly throughout the year. This means that the BoE interest rate will fall to 3.75% by the end of the year.

Daily Market Change Summary: The pound sterling is falling against the US dollar

The pound sterling is moving cautiously near the psychological support level of 1.2500 against the US dollar (USD) at the beginning of the year. GBP/USD is trading lower during Thursday’s European session and is expected to face more selling pressure going forward as the US Dollar Index (DXY) is near its highest level in over two years at around 108.50.
The dollar is expected to strengthen as investors expect President-elect Donald Trump’s upcoming policies to boost economic growth and inflation pressures in the United States (US). Such a scenario will force the Federal Reserve (Fed) to tardy down the pace of interest rate cuts, which will be beneficial for the US dollar and the yield of US treasury bonds.
Meanwhile, Fed officials have already recommended fewer rate cuts this year. Fed Chairman Jerome Powell, however, stops miniature of predicting the likely impact of Trump’s policies, such as immigration controls, higher import tariffs and lower taxes, on the economy.
The latest scatter plot in the Fed’s Summary of Economic Projections showed that policymakers collectively expect Federal Fund rates to reach 3.9% by the end of 2025, up from the 3.4% forecast in September.
Going forward, investors will be paying close attention to a number of economic indicators related to the U.S. labor market that will be released next week. Signs of improving labor demand will further negatively impact the prospects for Fed rate cuts, while feeble numbers will strengthen them.
Before that, however, investors’ attention will focus on the December ISM Manufacturing Purchasing Managers Index (PMI) data, which is scheduled for Friday. The manufacturing PMI is expected to be 48.3, slightly lower than November’s 48.4.

Technical analysis: The pound sterling is hovering around 1.2500

Sterling is struggling to hold key support at 1.2500 against the US dollar and is trading near seven-month lows on Thursday. The outlook for GBP/USD remains uncertain as it trades below an ascending trendline around 1.2600, which is drawn from the October 2023 low of 1.2035.

All miniature and long term exponential moving averages (EMAs) are trending downwards, suggesting a powerful downward trend in the long term.

The 14-day relative strength index (RSI) is falling below 40.00, signaling that a up-to-date bearish impulse could occur if the oscillator continues below this level.

Looking down, if the pair breaks below the immediate support at 1.2485, it is expected to find a cushion near the April 22 low at around 1.2300. On the other hand, the December 17 high at 1.2730 will be a key resistance.