GBP/USD edges higher above 1.3500, eyes Fed rate cut outlook
The post GBP/USD edges higher above 1. 3500, eyes Fed rate cut outlook appeared com. GBP/USD gains after a gap-down open, trading around 1. 3510 during the Asian hours on Monday. The pair gains ground as the US Dollar (USD) faces challenges, which could be attributed to growing expectations of two more rate cuts by the Federal Reserve (Fed) in 2026. Traders are likely to focus on the Federal Open Market Committee (FOMC) December Meeting Minutes due on Tuesday, which may shed light on internal policy debates shaping the Fed’s outlook for 2026. The US central bank lowered the federal funds rate by 25 basis points (bps) at the December meeting, bringing the target range to 3. 50%-3. 75%. The Fed delivered a cumulative 75 bps of rate cuts in 2025 amid a cooling labor market and still-elevated inflation. The CME FedWatch tool shows an 81. 7% probability of rates being held at the Fed’s January meeting, up from 77. 9% a week earlier. Meanwhile, the likelihood of a 25-basis-point rate cut has fallen to 18. 3% from 22. 1% a week ago. The latest weekly US labor market data sent mixed signals. Initial Jobless Claims declined to 214K from 224K in the prior week, beating the 223K market forecast. Meanwhile, Continuing Jobless Claims rose to 1. 923 million from 1. 885 million, while the four-week average of Initial Claims edged lower to 216. 75K from 217. 5K. The Bank of England (BoE) lowered the policy rate by 25 bps to 3. 75% in December, with a close 5-4 vote highlighting persistent inflation concerns. While inflation cooled to 3. 2% in November, it remains well above the BoE’s 2% target. UK GDP expanded by 0. 1% in the third quarter, meeting expectations, but the BoE projects flat growth in the final quarter. BoE Governor Andrew Bailey signaled that interest rates are expected to ease further in a gradual manner, but cautioned that the scope for additional cuts is limited.
