GBP/USD fell about 0.5% on Monday to around 1.3310, an eleven-week low, then recovered to near 1.3400 as US Dollar demand eased after an Iran-related safe-haven move. Over the past week, Sterling lagged other G10 currencies, falling versus the US, Australian, Canadian, and New Zealand Dollars, staying broadly flat against the Swiss Franc, and only rising against the Euro and Japanese Yen. The Bank of England held rates at 3.75% in February by a 5–4 vote, with Andrew Bailey casting the deciding vote. Bailey said the 19 March decision was “a genuinely open question” after services inflation printed at 4.4% in January versus a 4.1% forecast, while unemployment rose to 5.2% and wage growth eased to 4.2%.

Uk Politics And Market Focus

In UK politics, Labour lost the Gorton and Denton by-election to the Green Party after holding the seat in 2024, adding uncertainty ahead of May local elections. Markets are also watching Chancellor Reeves’s Spring Statement and updated Office for Budget Responsibility projections. On the daily chart, GBP/USD traded at 1.3409, with resistance near the 200-day EMA at 1.3425 and levels at 1.3520 and 1.3695. Support was cited at 1.3350, then 1.3250 and 1.3150; on the weekly chart, resistance was near 1.3650 and 1.37, with the 200-week EMA near 1.30 and risk towards 1.31–1.30 if 1.3250 breaks. Looking back at the analysis from this time in 2025, we saw GBP/USD under pressure around the 1.34 level. The key drivers then were a split Bank of England, rising UK political uncertainty, and broad US dollar strength. Those factors correctly pointed towards a period of sterling weakness. Throughout the rest of 2025, that weakness played out as the BoE began a slow cutting cycle, bringing the Bank Rate down from 3.75% to its current 3.00%. Last year’s political instability, as feared after the by-election loss, also capped any significant rallies following the May local elections. This saw the pound test the 1.3250 support level mentioned in the 2025 analysis before finding a floor late in the year.

Shifting Outlook In 2026

Today, on March 3rd, 2026, the situation has shifted as we trade near 1.3550. Recent UK inflation data for January 2026 came in at 2.5%, much closer to target, but the crucial change is on the US side. US Non-Farm Payrolls have now missed expectations for two consecutive months, leading to a growing belief that the Federal Reserve will begin cutting rates by this summer. This evolving central bank divergence, favoring the pound, suggests we should use derivatives to position for a potential retest of old resistance levels. Buying call options with a strike price around 1.3600 offers a defined-risk way to capture this upside momentum. This strategy takes advantage of the shifting sentiment without the unlimited risk of a direct spot position. Specifically, April or May 2026 expiry dates for these calls seem appropriate, targeting the 1.3650-1.3700 zone identified as a key barrier in the analysis from last year. Implied volatility remains moderate after 2025’s range-bound trading, making option premiums reasonably priced for this outlook. The goal is to profit from a continued grind higher as the market reprices Fed policy. The primary risk to this view is any unexpected strength in the UK labour market, as current unemployment sits at a stable 4.4%, which could make the BoE more hawkish. We must also watch the 50-day moving average, which acted as a guide in 2025, as a key support level. A firm break below that average would signal that the current bullish momentum is fading. Create your live VT Markets account and start trading now.

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