GBP/USD fell for a third straight day on Thursday, pulling back from a one-week high near 1.3715. In early European trading, it held above 1.3600 and barely moved after weak US data.
UK data kept pressure on sterling. Output rose 0.1% in the three months to December 2025, missing the 0.2% forecast. Q4 2025 GDP grew 1.0% year on year, below the 1.2% expected.
Uk Data Weighs On Sterling
Industrial and manufacturing production, along with the trade balance, also came in below estimates. Markets continued to price in a Bank of England rate cut in March.
The US dollar got support after traders scaled back expectations of a March Federal Reserve cut, following strong nonfarm payrolls data on Wednesday. Comments from two Federal Open Market Committee members also helped the dollar recover from a near two-week low.
Even so, markets still priced in at least two 25-basis-point Fed cuts in 2026. Focus now shifts to US weekly initial jobless claims, followed by US consumer inflation data due on Friday.
A correction clarified that Q4 2025 UK GDP growth was 1.0% year on year, not 1.3%.
Trade Idea And Key Risks
We expect the British pound to weaken as poor late-2025 UK data strengthens the case for a Bank of England rate cut next month. The 1.0% year-on-year GDP growth rate in Q4 2025 is worryingly low. It echoes the stagnation seen in 2023, which later led to a mild recession. This weak base suggests the pound could fall further against the dollar.
At the same time, the US dollar is firming as markets reassess the Fed’s rate path after last week’s strong jobs report. The recent nonfarm payrolls figure showed job growth well above 250,000, similar to the upside surprises in early 2024. This has sharply reduced the odds of a March cut. Federal funds futures now imply about a 20% chance of a March cut, down from more than 60% a few weeks ago.
Our near-term focus is tomorrow’s US consumer inflation data. This release will likely set the dollar’s direction for the next few weeks and strongly influence GBP/USD. If inflation comes in above the 2.9% consensus forecast, it would likely support a more patient Fed and could push GBP/USD below the 1.3600 support area.
Given this setup, we should consider buying GBP/USD put options to position for a potential decline. A put with a strike near 1.3550 and an expiry in late March could benefit from the expected policy split between the two central banks. It also keeps maximum risk defined ahead of what could be a volatile inflation release.
For investors with a higher risk tolerance, selling GBP/USD futures is a more direct approach, but it requires extra caution. The core theme remains the same: a weakening UK economy may force the BoE to cut, while a resilient US economy allows the Fed to wait. That mix supports a lower GBP/USD exchange rate. Any short-term rallies may offer chances to add bearish positions.
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