Fed’s first rate cut in Dec 2025 weakens USD, giving GBP room to rise. However, UK economic constraints prevent a strong breakout.
Three Key Factors for 2026
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– Fed’s rate cut pace – BoE easing in response to slowing growth – Fiscal credibility in US & UK
Dec 2025 rate cut to 3.50–3.75% is cautious. Markets watch inflation and data releases closely.
– Goldman: 1.35–1.36 – JPMorgan: 1.39 early 2026, 1.36 year-end – Morgan Stanley: 1.47 if Fed cuts aggressively
After 5 rate cuts in 2025, further easing to 3.25–3.00% is expected. Weak UK growth caps Sterling strength.
– Upside: US slowdown, policy missteps – Downside: Persistent US inflation, UK fiscal worries, global risk-off
Resistance: 1.38–1.42 Support: 1.30–1.32 Breakouts need major US slowdown or UK improvement