The GBP/USD exchange rate dropped after the Bank of England decided to keep interest rates at 3.75%. This decision came from a close vote of 5-4. Governor Andrew Bailey hinted that rates might be lowered in the future since inflation is expected to fall sharply and not meet targets. As a result, the value of Sterling fell to 1.3529, which is a 0.90% decrease.
The Bank of England forecasts that inflation will reach the 2% target by early 2028. They also predict GDP growth of 0.9% in 2026, increasing to 1.9% by 2028, with wage growth holding steady at 3.25%. After the BoE’s announcement, traders fully expect a rate cut in April, aligning with a predicted 72% chance of this happening.
On the US side, job data changed market expectations. Layoffs increased to 108,435, up by 118%. Hiring intentions fell by 13%, and initial jobless claims rose to 231,000, above the expected 212,000. This data led traders to anticipate 56 basis points of potential cuts by the Federal Reserve, up from the earlier expectation of 50 basis points.
The Bank of England’s signal for possible rate cuts points to a bearish outlook for the Pound. With the market now counting on a rate reduction in April, we anticipate further weakness for Sterling in the upcoming weeks. Recent statistics show UK inflation has dropped to 2.9% in January, down from 3.4% in December 2025, strengthening the case for an earlier adjustment by the BoE.
We should think about buying put options on GBP/USD, aiming for strike prices below the current 1.3529 level. Our first targets are the significant 1.3500 level and then the 50-day moving average near 1.3471. Options expiring in late March or April could be advantageous to capture the expected decline.
Although recent US jobs data was not strong, the Federal Reserve faces persistent inflation, with the latest Core PCE reading at 3.1%. This difference in policy indicates that the Bank of England may act before the Fed, making a short GBP/USD position an attractive trade. The preliminary UK GDP figures for the fourth quarter of 2025 showed stagnant 0.1% growth, which further supports this view.
Looking back, we saw the pound struggling in the second half of 2025 whenever global growth concerns arose, and this trend is reappearing. The pound’s widespread weakness is clear, especially against currencies where central banks face less pressure to ease policies. This suggests it might be wise to sell Sterling against a basket of currencies, not just the US dollar.
here to set up a live account on VT Markets now
