UK inflation data on Wednesday showed headline CPI at 3%. The Retail Price Index fell to 3.8% from 4.2%. Tuesday’s labour report showed unemployment at 5.2% and payrolls down by 30K. Markets also expect more Bank of England rate cuts from 3.75%. In the US, the Federal Reserve kept rates at 3.50% to 3.75% at its January meeting, in a 10–2 vote. Two members dissented and wanted a cut. The FOMC minutes are due today, along with US housing and durable goods data. These releases should add more detail on the policy outlook.

Technical Picture For GBPUSD

GBP/USD edged lower on Wednesday and closed near 1.3540. Trading was quiet, with a range of about 50 pips. The pair is testing the rising 50-day EMA at 1.3534 for the first time since mid-January. The 200-day EMA is also rising and sits at 1.3362. After reaching a year-to-date high of 1.3869 in late January, the pair has posted lower highs. The decline picked up pace after it fell below 1.3600 this week. The Stochastic Oscillator has turned bearish and is moving toward oversold levels. A daily close below the 50-day EMA could open the door to 1.3400. A move back above 1.3600 would be needed to stabilise the pullback. At this point in 2025, the outlook signalled a weaker pound. UK inflation and labour data were cooling sharply, and the Bank of England looked ready to cut rates from 3.75%. The Federal Reserve, by contrast, looked more cautious. That policy gap correctly pointed to GBP/USD breaking below its 50-day moving average and trending lower over the next two quarters.

Policy Divergence In 2026

The picture in February 2026 is very different from last year. The Bank of England has held its key rate at 3.25% for three straight meetings. It has pointed to persistent wage growth, now running at 4.1% year over year. This is a clear shift from the aggressive rate-cut cycle that was expected through most of 2025. At the same time, the US economy is showing clearer signs of slowing. The latest Non-Farm Payrolls report for January 2026 showed just 85,000 jobs added, well below consensus estimates. US core PCE, the Fed’s preferred inflation measure, has cooled to 2.9%. This has increased market expectations for a Fed cut by mid-year, reversing the policy-divergence theme from last year. In this environment, derivative traders may want to shift their GBP/USD view from bearish to neutral, or cautiously bullish. The phase where sterling was expected to weaken because of heavy BoE easing looks less likely for now. Strategies that suit range trading, or a gradual move higher in GBP, may now fit better. One approach is to consider buying GBP/USD call options expiring in Q2 2026, positioning for a slow grind higher. Strike prices around 1.3850 could offer an attractive risk-reward setup, targeting a retest of the early-2025 highs. This limits downside while keeping exposure to upside if the pound strengthens as central-bank expectations shift. Volatility also matters when setting up trades. Implied volatility for GBP/USD has fallen to a 12-month low of 6.8%, making long-option strategies cheaper than they were for much of last year. This makes it a more cost-effective time to build positions that can benefit if prices start moving more. Create your live VT Markets account and start trading now.

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