With BoE rate expectations skewed slightly higher before upcoming rate meetings, sterling bulls are likely to remain optimistic heading into 2025, barring a downside surprise in UK inflation.

Currently, futures are pricing a 80% chance the Fed will cut by 25bp on Dec.
18, while the BoE is expected to remain on hold.

Further out the respective front-end strips, SOFR and Sonia futures foresee the BoE easing more slowly than the Fed next year, projecting UK rates to end 2025 at 3.96% versus 3.86% in the U.S., which should keep the pound anchored near current levels.

The current sterling bid comes with risks, particularly as it relates to inflation.
The upcoming inflation data, Dec.
11 for the U.S. and Dec.
18 for the UK, may not upset the apple cart for December central bank expectations.
Data surprises for either bank will lead traders to adjust expectations and positions, injecting increased volatility.

With U.S. inflation up first, traders will be eying the core data, which is forecast at 3.3%, flat over the past few months but up from the July low at 3.2%.
That might prod the Fed to pause cuts, which may cap GBP/USD's run by its 200-DMA near 1.2822.

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