GBP/USD traded without a clear direction at the start of the week, hovering around 1.3490 as subdued year-end liquidity kept market moves contained. The pair was slightly lower on the day, down about 0.1%, as investors remained cautious ahead of the New Year holiday period.
With trading volumes thinning, attention has shifted to the policy outlook gap between the Federal Reserve and the Bank of England, which continues to shape medium-term expectations for the currency pair.
Sterling has struggled to gain momentum despite views that the BoE will pursue a more gradual easing cycle than its US counterpart in 2026. Inflation in the UK remains well above the central bank’s 2% target, limiting how aggressively policymakers can cut rates. Although price pressures have cooled, annual inflation slowed to 3.2% in November, down from a peak of 3.8% between July and September.
By contrast, expectations of faster and deeper rate cuts in the United States continue to weigh on the US dollar. Markets are increasingly pricing in a more accommodative Fed stance next year following recent signals that the tightening cycle has ended.
In the near term, GBP/USD is likely to remain range-bound as investors avoid large positions during the holiday slowdown. Clearer direction is expected to emerge once liquidity improves and fresh guidance from both central banks comes into focus early in 2026.
