Pound Sterling Softens as Falling Gilt Yields and Dovish BoE Bets Pressure GBP

Fundamental Overview

The Pound Sterling (GBP) began the week under pressure, weakening against major currencies as expectations grow for a Bank of England (BoE) rate cut on December 18. Markets anticipate a 25 bps reduction to 3.75%, driven by softer UK employment data and easing inflation trends.

Additionally, the decline in UK gilt yields is weighing on GBP sentiment. Yields have dropped nearly 4%, with the 10-year moving down to 4.44%, retreating from November’s 4.62% peak. The fall follows Chancellor Rachel Reeves’ Autumn Budget, which introduced £26 billion in tax hikes through 2029–30. Moody’s noted the fiscal tightening but warned that implementation risks remain.

GBP/USD Technical Analysis – Daily Chart

Technical Overview

• GBP/USD trades within a downward channel.
• Price is currently below the 50 & 100 SMAs.
• RSI indicates a bullish bias; Stochastic shows a neutral trend.
• Immediate Resistance: 1.3250
• Immediate Support: 1.3125

How to Trade GBP/USD

GBP/USD has shown strong recovery momentum after a sharp decline, breaking above a significant trendline and support level. The pair is now pulling back, likely preparing for a retest of the breakout zone. If this area holds firm, GBP/USD may resume its upward move.

Trade Suggestion:
Limit Buy: 1.3190
Take Profit: 1.3327
Stop Loss: 1.3123

Frequently Asked Questions (FAQ)

Q1: Why is the Pound weakening?
Because markets expect the BoE to cut rates in December alongside falling gilt yields.

Q2: What caused gilt yields to drop?
The Autumn Budget announced significant tax hikes, pulling yields lower.

Q3: Is the overall trend bearish?
Short-term pressure remains, but recent price action shows bullish momentum on higher timeframes.

Q4: What are key levels to watch?
Resistance at 1.3250 and support at 1.3125.

Q5: Could GBP recover?
Yes—if the trendline retest holds, upside continuation is possible.

Disclaimer

This report is for informational and educational purposes only and does not constitute financial advice. Trading forex involves significant risk and may not be suitable for all investors. Always conduct your own analysis or consult a licensed financial professional before making trading decisions.