Sterling gains momentum above 1.3480 amid shifting US monetary outlook and BoE's measured easing stance

The GBP/USD exchange rate is trading near 1.3480 in early Asian hours on Friday, bolstered by diverging monetary policy signals from across the Atlantic. While the Bank of England maintains a cautious, measured approach to rate reductions, market participants are increasingly pricing in multiple interest rate cuts from the Federal Reserve this year.

Diverging Central Bank Paths Support Pounds to USD Rally

The policy divergence between the two central banks has become a key driver for the currency pair. The Bank of England cut rates to 3.75% in December, marking the lowest level in nearly three years, yet Governor Andrew Bailey signaled that future reductions would proceed gradually and selectively. His statement that “how much further we go becomes a closer call” with each cut suggests the BoE will remain cautious, providing relative support to sterling as the pound’s yield advantage persists compared to a US dollar facing fresh headwinds.

In contrast, the Federal Reserve is viewed as entering an easing cycle. Market pricing via the CME FedWatch tool shows nearly 15.0% probability of a rate cut at the January meeting alone. With expectations for at least two reductions priced in for the full year, the US dollar faces mounting pressure.

Trump’s Fed Succession Comments Weigh on Dollar

Recent commentary from US President Donald Trump regarding his preference for a dovish Fed successor has added another layer of downside pressure on the greenback. Trump indicated expectations that the next Federal Reserve chair—following Jerome Powell’s term conclusion this year—would maintain accommodative policy and avoid policy disagreements with the administration. Such remarks have reignited concerns about central bank independence and reinforced market bets on lower US rates.

The dollar’s weakness has been pronounced, with the currency recording its sharpest annual decline in eight years as 2025 began. Philadelphia Fed President Anna Paulson’s scheduled remarks over the weekend may provide fresh directional cues, though sentiment surrounding easier monetary policy remains the dominant near-term driver for GBP/USD momentum.