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30.12.202409:48 Forex Analysis & Reviews: The Pound Loses Victory at the Finish Line

You can't go far with just one central bank. For quite some time, the Bank of England's (BoE) cautious strategy benefited the pound. The gradual approach taken by Andrew Bailey and his colleagues in reducing the repo rate, coupled with the fastest economic growth in the G7, positioned sterling as the top performer among the G10 currencies. However, Donald Trump's return to power in the United States allowed the US dollar to overtake it at the finish line, causing the victory to slip from the hands of GBP/USD bulls.

Despite being one of the first to initiate a cycle of monetary easing, the BoE's recent pauses in repo rate cuts have resulted in the rate ending 2024 higher than the Federal Reserve's funds rate. In 2025, both the US and the UK are expected to implement two rounds of monetary easing, which will leave neither GBP/USD buyers nor sellers at a clear advantage. However, the divergence in economic growth suggests a different narrative.

Central Bank Rate Dynamics

Exchange Rates 30.12.2024 analysis

In the first half of the year, the UK economy appeared to be sailing ahead, thanks partly to the Labour Party's victory in the parliamentary elections. The party promised to make Britain the leading economy in the G7, and initially, it seemed achievable. However, a budget deficit discovered after the Conservatives' tenure and subsequent tax hikes soured the mood of GBP/USD enthusiasts. Initially, measures announced by Chancellor Rachel Reeves seemed poised to boost GDP, but now it has become obvious that they will slow it down.

In the third quarter, the UK's GDP stopped growing, and the figures for the second quarter were revised down from +0.5% to +0.4%. The BoE forecasts no economic expansion for the fourth quarter. In contrast, the Federal Reserve Bank of Atlanta projects US GDP growth at 3.1%. This stark disparity poses a significant challenge for GBP/USD bulls.

UK Economic Dynamics

Exchange Rates 30.12.2024 analysis

The situation may deteriorate further. If Donald Trump successfully implements his campaign promises, the gap between economic growth in the US and the UK could widen. Fiscal stimulus might boost US GDP growth, while trade tariffs could hinder the UK's economy. Realizing the "America First" agenda would likely result in significant negative impacts on the GBP/USD exchange rate.

Exchange Rates 30.12.2024 analysis

For sterling bulls, there remains only one glimmer of hope: that Congress will limit Trump's authority. Despite the Republican majority, Trump's initial proposal to extend the debt ceiling to 2027 and increase its size was blocked by members of his own party. What about fiscal stimulus measures? Could they encounter similar opposition?

From a technical perspective, on the daily GBP/USD chart, bulls are attempting to form a "Double Bottom" reversal pattern and push the pair's quotes back into the fair value range of 1.259–1.278. If successful, the likelihood of a continued rebound to 1.267 and 1.270 will increase. Conversely, a rejection from these levels could create selling opportunities for the pound, especially if sterling buyers fail to break through the resistance at $1.259.

*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.

Marek Petkovich,
Analytical expert of InstaSpot
© 2007-2025
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