Sterling slipped slightly on Wednesday after hitting four-year highs. The move came as the Bank of England (BoE) sounded more dovish and UK politics added uncertainty. The BoE held rates, but the Monetary Policy Committee (MPC) vote split 5-4, with four members calling for an immediate 25 basis point cut. The BoE said inflation could reach 2% sooner than expected. Markets are now pricing in 50 basis points of rate cuts in 2026. UK politics also drew attention after Anas Sarwar called on Prime Minister Keir Starmer to resign over the Peter Mandelson scandal, although later support from the cabinet helped calm the situation. Thursday brings the UK’s preliminary GDP data for Q4 2025. Consensus expects 0.2% quarter-on-quarter (up from 0.1% in Q3) and 1.2% year-on-year (down from 1.3%). December industrial and manufacturing production figures are also due. These releases follow the BoE’s decision to cut its 2026 GDP forecast to 0.9% from 1.2%. On Friday, MPC member Pill is scheduled to speak, and the delayed US January CPI report is due. Headline inflation is expected at 2.5% year-on-year, with core inflation seen at 0.3% month-on-month. GBP/USD traded at 1.3627, down 0.12%, below 1.3869 but above the 50-day EMA (1.3516) and 200-day EMA (1.3312). Support is seen at 1.3585 to 1.3620, then 1.3516 and 1.3380 to 1.3400. Resistance is at 1.3735 and 1.3869. The Stochastic Oscillator (14, 5, 5) read 47.10/52.91. The latest BoE meeting has created real uncertainty. The 5-4 vote, with four members pushing for an immediate cut, signals a clear dovish shift. That shift is now weighing on Sterling. This makes trading harder because the weaker Pound is moving against a US Dollar that is also starting to soften. With UK GDP for the final quarter of 2025 due today, we should be ready for a downside surprise, especially after the BoE lowered its 2026 growth forecast. One-week implied volatility in the options market has already risen above 8%, showing that traders expect a sharp move after this release and tomorrow’s US inflation data. With volatility this high, holding a simple directional trade carries extra risk. Because the upcoming data could lead to a big move either way, a long-volatility trade such as a straddle may make sense. This would benefit from a large move in either direction, whether driven by a weak UK GDP result or a softer US CPI print. The goal is to capture a breakout, not to guess the direction. Another approach is for those who think support near 1.3600 will hold. In that case, selling put options with a strike below 1.3550 could generate income. A similar pattern appeared in late 2023: the UK fell into a technical recession, but the currency still found a floor. However, if price breaks below support in a clear way, buying puts becomes a better hedge against deeper losses. Over the next few weeks, the market pricing of 50 basis points of cuts in 2026 will likely limit any major Sterling rally. If Pill sounds more hawkish on Friday, markets may reassess in the short term, but the broader dovish pressure remains. For that reason, we should be careful about chasing GBP/USD strength above 1.3800.

here to set up a live account on VT Markets now