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Ahead of the end of the first month of 2025 trading, the British pound is recovering with the help of an improvement in the market situation and investor sentiment, lower bond yields, and the realization by British leaders that action is needed to boost the economy. Yesterday, the GBP/USD currency pair fell to the support level of 1.2393 before quickly recovering to the resistance level of 1.2457 following the announcement of the US Federal Reserve's policies. Meanwhile, the currency pair is stable around the level of 1.2440 at the time of writing the analysis.
US Federal Reserve Halts Interest Rate Cut Cycle
According to yesterday's announcement, the US Federal Reserve kept the federal funds rate steady at the range of 4.25% - 4.5% during its meeting in January 2025, in line with expectations. The US central bank has paused its rate-cutting cycle after three consecutive cuts in 2024 totalling a full percentage point. For his part, US central bank Chairman Jerome Powell said that the Fed is in no rush to cut interest rates, and that it has paused the cuts to see further progress in inflation. Furthermore, policymakers noted that recent indicators suggest that economic activity has continued to expand at a solid pace.
The country's unemployment rate has stabilized at a low level in recent months, and labour market conditions have remained strong. In addition, the US central bank acknowledged that inflation remains somewhat elevated and removed its previous reference to continued progress toward its 2% target. Also, the Fed added that the economic outlook is uncertain, and it is alert to risks to both sides of its dual mandate.
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Improving sentiment, risk appetite and strong financial markets will be in favor of the gains of the British pound, so watch these factors carefully British Government is Trying to Restore Confidence in the Economy and the Pound
The British Prime Minister and his advisor are keenly seeking to ignite economic growth, as they have both embarked on an intensive campaign to promote the economy. Reeves said at the weekend that Britain needs to emulate a positive Donald Trump, and Keir Starmer said on Tuesday that he intends to "embed" growth in his government's plans. In return, Reeves, according to Treasury statements to the media, will say, "Low growth is not our destiny. But growth will not come without a fight." She will pledge to go "further and faster" to boost the UK economy by removing obstacles to new infrastructure projects.
Accordingly, economists and commentators have said that the biggest mistake Reeves and Starmer made when they took office was to speak negatively about the economy and the country's finances. Clearly, this was a political strategy that they believed would paint the previous government in a bad light and pave the way for business tax increases.
Economically, this strategy has been a mistake as it has shattered business and consumer confidence and stalled growth. Overall, the messaging in 2025 is more upbeat and Starmer and Reeves seem intent on injecting the confidence needed to revive the“animal spirit” among businesses. The tone will help stabilise UK bond and currency markets, where we are seeing 10-year yields retreat from multi-year highs and both GBP/EUR and GBP/USD rallying again.
So global conditions are certainly more benign too, which naturally helps sterling, but domestic sentiment will be crucial. Markets will welcome the UK government's rhetoric, but ultimately it will be the details that will determine whether sterling's rally continues.
EURUSD Chart by TradingViewTechnical Analysis for the GBP/USD pair today:
According to the performance on the daily chart, the GBP/USD currency pair is still at the beginning of the stage of breaking the general downward trend. Technically, the attempts to rebound upwards will not succeed without the bulls moving towards the resistance levels of 1.2585 and 1.2670, respectively. So far, the performance of the technical indicators is still neutral, led by the Relative Strength Index and the Stochastic Oscillator. Meanwhile, the bulls have a lot of work to do to change the direction of the GBP/USD to bullish. In return, and in the same time frame, the support level of 1.2330 will remain the most important for the return of the bears' control and thus the preparation for stronger bearish breaches.
The GBP/USD is not awaiting any important British data today, and all the focus will be on the US releases, led by the announcement of GDP growth and the number of weekly US jobless claims. By the end of the week, the focus will be on the announcement of the US inflation reading, which is preferred by the US Federal Reserve.
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