Pound Sterling Edges Lower Against US Dollar as 2025 Draws to a Close

Pound Sterling edges lower against US Dollar in the final European trading sessions of 2025, even as the British currency remains broadly resilient against most of its major peers. Market participants continue to position for 2026 on the assumption that the United Kingdom will see a slower pace of interest rate cuts compared to other advanced economies. This relative policy outlook has helped cushion downside pressure on the pound, despite short-term fluctuations against the greenback.

Bank of England Outlook Supports the Pound

The Bank of England (BoE) delivered a 25 basis point interest rate cut earlier this month, bringing the policy rate to 3.75%. While the move signaled the start of an easing cycle, policymakers emphasized that any further reductions would be gradual and highly data-dependent. Inflation is projected to ease toward 3% in the first quarter of 2026 and move closer to the BoE’s 2% target by the second quarter.

This cautious approach has underpinned expectations that the pound could remain comparatively strong next year. However, concerns persist around the UK labor market. Employment conditions weakened through 2025, with higher employer social security contributions weighing on hiring. The unemployment rate rose to 5.1% in the three months to October, marking its highest level since early 2021 and keeping policymakers alert to downside risks.

Federal Reserve Expectations Lift the US Dollar

While Pound Sterling edges lower against US Dollar, the move largely reflects renewed strength in the greenback rather than a sharp deterioration in UK fundamentals. The US Dollar Index climbed to a fresh weekly high as investors digested dovish Federal Open Market Committee (FOMC) minutes. Despite the Federal Reserve already cutting rates by 75 basis points in 2025, officials signaled openness to additional easing to protect the labor market.

Market pricing suggests strong confidence that the Fed will deliver at least 50 basis points of further cuts in 2026. Attention is also turning to the upcoming announcement of the next Federal Reserve Chair, which could influence near-term dollar sentiment.

Technical Picture Remains Constructive

From a technical perspective, Pound Sterling edges lower against US Dollar but remains supported above its rising 20-day exponential moving average. Momentum indicators stay positive, suggesting that the broader bullish structure is still intact. A decisive break above nearby resistance could reignite upside momentum, while failure to do so may trigger a period of consolidation into early 2026.

Overall, Pound Sterling edges lower against US Dollar in the short term, yet longer-term prospects continue to be shaped by relative monetary policy paths and evolving labor market conditions on both sides of the Atlantic.

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