GBP/USD in focus ahead of FED and BOE meetings

It’s a busy one on the calendar this week with the Federal reserve, Bank of Japan and Bank of England all meeting to deliver their latest monetary policy updates. The Fed is expected to cut rates by 25 basis points whilst the BoJ and BoE are expected to keep their rates unchanged.

USD Dynamics: All Eyes on the Fed

The GBP/USD currency pair is likely to experience notable momentum this week, driven by developments on both sides. The US dollar has recently shown renewed bullish momentum, but a rate cut from the Fed on Wednesday could trigger a reversal. Markets are currently pricing in a 95% probability of a 25-basis-point rate cut, leaving little room for surprises.

Source: refinitiv

While the rate cut itself is widely expected, the focus will shift to the Fed’s messaging and updated economic projections. Markets currently anticipate 50 basis points of rate cuts for 2025.

However, the Fed’s September Summary of Economic Projections (SEP) suggested a more hawkish outlook, with rates potentially falling to arrange of 3% and 3.5%—equivalent to at least 100 basis points of cuts next year.

If this week’s dot plot shifts higher, it could validate a more hawkish Fed stance, bridging the gap between market and Fed expectations. However, if the Fed strikes a dovish tone due to faster-than-expected inflation cooling, the dollar may face renewed downside pressure. This meeting will be particularly significant as it marks the first economic projections released since the recent US elections.

Markets will also be watching closely for any signs that persistent inflationary pressures—potentially linked to Trump-era policies—could force the Fed to scale back its easing cycle, supporting further dollar strength.

Source: federalreserve.gov

Bank of England: Steady Policy, But CPI Risks Loom

The BoE is widely expected to hold rates steady at 4.75% during Thursday’s meeting, with a 93% chance of no policy change priced in. A rate cut at this stage would be a considerable shock. Unlike the Fed, the BoE meeting will lack updated economic projections and a press conference, potentially muting the immediate market reaction.

Recent UK economic data has largely aligned with BoE expectations. While headline inflation has come in slightly higher than expected, services inflation remains on track. The BoE remains cautious, given ongoing upside risks to inflation and the expansionary fiscal policies introduced in the government’s latest budget. Markets currently expect 57 basis points of rate cuts from the BoE in 2025.

It is important to note that the latest consumer inflation data for the UK will be released the day before the BoE meeting. Both headline and core CPI are expected to have risen to 2.6% and 3.6% respectively in November, from 2.3% and 3.3% in October. This would confirm persistent price pressures and therefore confirm that a rate cut is completely off the table for this month. 

Given the lack of forecast updates the market reaction is likely to be muted upon announcement, unless there are any surprises from the CPI data on Wednesday which could alter the guidance. 

GBP/USD Outlook: Key Drivers and Scenarios

If both central banks act in line with expectations—a 25-basis-point cut from the Fed and no change from the BoE—GBP/USD could extend its recent bullish reversal. However, the trajectory of the pair will depend heavily on market expectations for rate differentials in 2025.

• A hawkish tilt from the BoE relative to the Fed could favour GBP/USD upside.

• Conversely, if the Fed delivers a hawkish rate cut—signalling fewer cuts next year due to stronger US economic resilience—the upside for GBP/USD may remain capped.

Conclusion

The GBP/USD pair faces a pivotal week as central bank policies and inflation data converge to shape sentiment. Traders should brace for potential volatility, particularly following the Fed’s messaging on Wednesday and the UK CPI release ahead of Thursday’s BoE decision.

GBP/USD daily chart

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