The GBP/USD currency pair has recently experienced significant volatility, falling to a fresh seven-month low of 1.2472, the lowest level since May 2024. This decline has been attributed to ongoing political turmoil in the United States, particularly surrounding budget negotiations that have created market anxieties. Notably, 38 Republicans voted against a spending bill that was supported by President-elect Donald Trump, raising concerns about a potential government shutdown if an agreement is not reached. Analysts are predicting further declines for the GBP/USD, with targets set as low as 1.23. Additionally, Trump's demands for the European Union to purchase more U.S. crude oil and gas have raised tariff concerns, further complicating the economic landscape. As a result, the U.S. dollar index remains around 108.5, close to its highest level since November 2022, reflecting a souring market sentiment following the failure of the spending bill to secure the necessary votes [33792ba3].
In a broader context, the GBP/USD had previously broken above the 1.2630 mark before this recent downturn, recovering slightly after a three-day losing streak. However, the upcoming economic announcements, including the Federal Reserve's monetary policy decision and the Bank of England's interest rate meeting, are expected to influence market dynamics significantly. The Fed is anticipated to announce a third consecutive reduction in borrowing costs, while the Bank of England is likely to maintain current interest rates, despite Governor Andrew Bailey hinting at potential rate cuts in 2025. Traders are closely monitoring preliminary PMI data from both the UK and the US, along with key economic indicators such as UK employment data and US retail sales, which will be released in the coming days. The upcoming UK retail sales data will also be crucial for shaping market sentiment as economic and political factors continue to impact the GBP/USD currency pair [6c077a2d].