Bank Of England’s Inflation Worries

The Bank of England is still worried about high inflation, as its members have raised concerns about possible risks. In November, UK Retail Sales dropped from 1.5% YoY to 1.2%, falling short of the 2.4% forecast. This decline has affected GBP/USD. On a technical level, GBP/USD looks neutral to slightly positive, but there are risks of further losses after breaching the 200-day simple moving average (SMA). The next support is at the 50-day SMA at 1.3259. Should it decline further, we could see declines toward the 20-day SMA at 1.3201 and the 1.3150 level. The US dollar is gaining strength, which is making the British pound weaker. Strong job openings data from the US has pushed the GBP/USD pair below the important 200-day moving average, which signals a bearish trend. All eyes are now on the Federal Reserve’s upcoming policy decision this week. Looking at the recent US inflation data from November 2025, we see that core CPI is steady at 3.8%, well above the Fed’s target of 2%. This, along with the strong JOLTS report, gives the Fed good reason to keep its restrictive approach. In contrast, the UK economy is slowing down, with last week’s data showing only 0.1% GDP growth for the third quarter of 2025.

Preparing for Further Declines

The Federal Reserve is likely to indicate that interest rates will remain high for a while, which will attract more capital to the US dollar. The market expects a hawkish pause, where the Fed keeps rates steady but makes it clear that the battle against inflation continues. This outlook puts additional downward pressure on other currencies like the pound. At the same time, the Bank of England faces challenges. Members are genuinely concerned about ongoing inflation, but weak retail sales and slow growth limit their options for raising rates without risking a recession. This conflicting policy creates uncertainty, which is typically bad for a currency. Given this situation, it may be wise to prepare for further declines in GBP/USD in the upcoming weeks. Purchasing put options on the pound could help profit from a potential drop, especially if the Fed delivers a hawkish statement that drives the pair closer to its next support levels. This strategy also acts as a safeguard against any long positions we might have in sterling. A similar situation occurred in late 2022 when the Fed’s aggressive rate hikes far exceeded those of the Bank of England, causing a substantial drop in the GBP/USD exchange rate. That period of policy divergence serves as a historical guide for what we might expect now. The current mix of a strong US labor market and a weak UK economy mirrors that trend. With the breach below the 200-day moving average at 1.3331, we are now focused on the next technical support level. The 50-day moving average at 1.3259 is critical to watch. A solid break below that could lead to a slide toward the 1.3200 level. Create your live VT Markets account and start trading now.

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