GBP/USD increased by 0.60% as the US Dollar fell, while the Bank of England (BoE) maintained a cautious approach. However, GBP/USD is still set for a weekly drop of 0.56%.
The US Dollar Index slipped by 0.37% to 97.59 after hitting a high of 98.03. The BoE kept interest rates steady but hinted at possible cuts if inflation continues to decline. BoE Governor Bailey suggests further rate reductions, with Chief Economist Huw Pill mentioning easing inflation and slow private-sector growth.
Softer Job Data Impacts the Market
In the US, weaker job data caused market shifts, leading to a reversal of initial gains in the Dollar. Job openings fell, layoffs increased, and Jobless Claims went up, making it more likely that the Federal Reserve will cut rates by 2026. Consumer Sentiment saw a slight improvement in February, along with minor changes in inflation expectations.
Upcoming US data, delayed due to a government shutdown, includes Nonfarm Payrolls and CPI. In the UK, GDP data and a speech from BoE’s Bailey could also affect market movements, despite ongoing political challenges. Technical analysis indicates that GBP/USD needs to stay above 1.3600 to reach higher levels. A drop below this threshold may lead to testing lower support levels.
We are witnessing a tug-of-war in GBP/USD. The recent rebound of the pound is more a result of US dollar weakness than its own strength. The BoE’s clear intention to cut rates caps how high GBP/USD can rise, resulting in short-lived rallies.
From a data perspective, the BoE’s cautious approach makes sense when we review late 2025 data. UK headline CPI fell to 3.8% in December 2025, a significant drop from earlier highs that year, reinforcing the disinflation trend. With subdued private sector growth, pressure on the BoE to ease policies is growing.
US Dollar Under Pressure from Cooling Labor Market
Conversely, the US dollar is losing ground as the labor market shows signs of cooling. Nonfarm Payrolls at the end of 2025 were consistently below 200,000, and January 2026 initial jobless claims rose to 225,000. This trend increases speculation that the Fed will need to cut rates soon, putting more pressure on the dollar.
The upcoming delayed US jobs and inflation reports will be crucial in the coming weeks. These figures will greatly impact expectations on whether the Fed or the BoE will make rate cuts first, leading to potential volatility. Options traders should brace for sharp market movements in either direction following these releases.
For now, the 1.3600 level is the key area for GBP/USD. If the price stays above this mark, we might consider buying short-dated call options with a target around the 1.3662 high. If it fails to hold at 1.3600, put options targeting the weekly low of 1.3508 and the 50-day moving average near 1.3463 could be considered.
Lastly, the political situation surrounding the Prime Minister adds uncertainty, which could increase implied volatility on GBP options. This reflects the risk of sudden price swings driven by headlines rather than economic data.
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