GBP/USD advances toward 1.3235 in early European trading on Wednesday, supported by sustained weakness in the US Dollar (USD). The Greenback remains under pressure as expectations grow that the US Federal Reserve (Fed) will deliver a 25 basis-point (bps) rate cut at next week’s policy meeting.
Fed cut expectations undermine USD
Dovish Fed commentary and signs of a cooling US economy have strengthened the case for a December rate reduction. According to the CME FedWatch Tool, markets now assign nearly an 89% probability to a quarter-point cut next week, limiting the USD’s recovery attempts.
Adding to the pressure, US President Donald Trump said he intends to announce a new Fed chair in early 2026. Reports from Bloomberg earlier this week indicated that Kevin Hassett is the leading candidate to succeed Jerome Powell. Hassett, viewed as the most dovish option, could further weigh on the USD if his prospects continue to gain traction.
BoE expectations may cap sterling gains
On the UK side, softer inflation data, a cooling labor market and the November autumn budget have reinforced expectations for a Bank of England (BoE) rate cut in December. Prime Minister Keir Starmer has emphasized the need to lower inflation and interest rates to support business investment and strengthen economic growth.
Most analysts anticipate that the BoE will lower its policy rate to 3.75% this month, with markets pricing in a 90% probability. These dovish expectations could act as a headwind for GBP/USD, limiting the pair’s upside despite broad USD weakness.
