Pound Sterling stays under pressure against US Dollar as traders pare back Fed dovish bets

The Pound Sterling struggles near 1.2600 against the US Dollar as investors expect the Fed to follow a more gradual policy-easing approach.

Fed officials refrain from projecting the consequences of Trump’s policies on interest rates.

The next big move for the British currency will likely occur on Wednesday when UK inflation data for October will be released.

The Pound Sterling (GBP) remains under pressure near 1.2600 against the US Dollar (USD) in Monday’s London session. The GBP/USD pair struggles to gain ground as the US Dollar clings to gains near a more-than-a-year high, with the US Dollar Index (DXY) wobbling around 107.00. 

The Greenback trades firmly as investors expect the Federal Reserve (Fed) to follow a more gradual rate-cut approach given the recent slight rebound in inflation and the growth outlook on strong expectations that President-elected Donald Trump will be able to implement his economic agenda smoothly.

In the December meeting, there is a 62% chance that the Fed will cut interest rates by 25 basis points (bps) to 4.25%-4.50%, according to the CME FedWatch tool. This is significantly down from the almost 77% seen a month ago.  

Trump’s victory is also making analysts reassess the Fed’s interest-rate outlook for next year. “The Fed’s Monetary Policy Committee (MPC) will be acutely aware that Donald Trump’s policies could be significantly inflationary, primarily due to the impact of tariffs being passed on to consumers while lower taxes heat up the economy,” analysts at Quilter Investors said.