Though GBP/USD rallied slightly off its post-Fed low at 1.2563, the shallow recovery and subsequent slide after the dovish BoE rate hold suggest potential further declines in 2025 if the dovish outlook persists and UK rate policy drifts below the U.S.

Sterling has been the top performing G7 currency against the dollar this year but it has fallen 1.2% in December alone and is now down 1.06% year-to-date due to faltering UK growth and narrowing rate expectations between the U.S. and UK.

The pound's rate dominance came under pressure after Wednesday's hawkish Fed guidance and Thursday's 6-3 vote to keep UK rates steady.

In the broader G7 currency landscape, a dovish outlook generally weakens a currency, as seen with the recent slide in the AUD following dovish RBA guidance and the yen's decline after the BoJ's rate hold amid rising Japanese inflation.

More dovish UK monetary policy expectations may lead to a reduction in GBP/USD net spec long positioning, which currently stands at +27k contracts, or in USD terms -$2.17bln.

However, there may be more significant opportunities in sterling crosses like the GBP/JPY and GBP/AUD and GBP/CAD where the pound will be able to flex its relative rate advantage as UK inflation, growth and policy expectations evolve. For more click on

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GBP Chart:

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

((paul.spirgel@thomsonreuters.com))