GBP/USD slipped to around 1.3480 in European trading as the Pound weakened. Markets are now more confident that the Bank of England could cut rates soon.
MPC member Alan Taylor said the labour market faces downside risks and that inflation is returning to normal. He added that the BoE could deliver two or three rate cuts before reaching a neutral level, where policy neither supports nor slows growth.
BoE Dovish Signals Weigh On Sterling
Recent UK jobs and CPI data showed unemployment rising and inflation easing. The US Dollar stayed firm, even after new tariff threats from US President Donald Trump.
Trump warned of higher levies on countries that plan to break trade deals. He also pointed to possible alternatives after the Supreme Court blocked one tariff policy.
GBP/USD was near 1.3470, with the 14-day RSI around 40.00. A close below 40.00 could increase bearish momentum. The 20-day EMA is trending lower and sits at 1.3561.
A close below the 19 February low of 1.3434 could open the way to the 19 January low of 1.3344. Any rebound would need a sustained move back above the 20-day EMA.
Looking Back To 2025
At this point in 2025, the Pound was already under heavy pressure as traders priced in Bank of England rate cuts. GBP/USD was struggling near 1.3480 while Monetary Policy Committee members signaled a clear shift toward a more dovish stance. Expectations for lower inflation and a softer labour market set the tone for the year ahead.
That view proved right. The Bank of England cut rates twice by the end of 2025, taking the Bank Rate down to today’s 4.75%. Inflation has cooled sharply, with the latest January 2026 CPI reading at 2.5%, much closer to target. But there was a trade-off: unemployment has risen to 4.3%, matching the labour-market risks flagged a year earlier.
Because the US moved on a different timeline, GBP/USD has fallen to around 1.2550. That is a steep drop from last year. For derivatives traders, this matters because the big directional move tied to the first leg of the cut cycle may already be behind us. With implied volatility now lower—Cboe BPVIX is near 6.5%—selling options to collect premium may be a workable approach.
Now that both the BoE and the US Federal Reserve are easing more gradually, we do not expect a repeat of the sharp declines seen in 2025. That points to more range-bound trading in the weeks ahead. As a result, strategies such as selling strangles or straddles may appeal to traders seeking to benefit from lower volatility and time decay.
Even so, it is important to stay cautious. Upcoming inflation and employment reports could still surprise. If UK data comes in stronger than expected, rate-cut expectations could shift quickly and volatility could jump. In that case, long-volatility protection—such as buying puts—may be a sensible hedge against a sudden rebound in the Pound.
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