GBP/USD edges higher to near 1.2600 ahead of BoE rate decision

• GBP/USD receives support as the Bank of England is widely expected to keep interest rates unchanged on Thursday.
• The Pound Sterling depreciated more than 1% against the US Dollar following the Fed’s decision on Wednesday.
• The ‘dot plot,’ indicated only two rate cuts by the Fed in 2025, a reduction from four projected in September.

GBP/USD gains ground after declining more than 1% following the Federal Reserve’s (Fed) hawkish cut on Wednesday, trading around 1.2590 during the Asian hours on Thursday. The Pound Sterling (GBP) gains upward support as the Bank of England (BoE) is anticipated to keep interest rates unchanged later in the day while remaining focused on addressing elevated domestic inflation.

On Wednesday, data showed that the UK Consumer Price Index (CPI) rose by 2.6% year-over-year in November following 2.3% growth in October. Core CPI, excluding volatile food and energy items, increased 3.5% YoY in November, compared to a previous rise of 3.3%. Meanwhile, the annual services inflation steadied at 5%, below forecasts of 5.1% but above the BoE's estimate of 4.9%.

The GBP/USD pair declined as the US Dollar (USD) appreciated as the Federal Reserve (Fed) delivered a hawkish cut of 25 basis points (bps) at its December meeting on Wednesday, bringing its benchmark lending rate to a range of 4.25%-4.50%, a two-year low. Traders will likely observe the US weekly Initial Jobless Claims, Existing Home Sales, and final reading of Gross Domestic Product Annualized for the third quarter (Q3) due on Thursday.

The Summary of Economic Projections, or ‘dot-plot,’ suggested only two rate cuts in 2025, down from the four they projected in September. Additionally, during the Press Conference, Fed Chair Jerome Powell made clear that the Fed will be cautious about further cuts as inflation remains stubbornly above the central bank’s 2% target.