The Pound Sterling has dropped against major currencies after the Bank of England (BoE) decided to keep interest rates at 3.75%. This decision, made with a 5-4 vote, continues the BoE’s “gradual monetary easing” plan without a clear timeline for future rate cuts.
In the recent meeting, members of the Monetary Policy Committee (MPC)—Swati Dhingra, Alan Taylor, Sarah Breeden, and Dave Ramsden—recommended a 25 basis point cut. Since December, the BoE has been slowly reducing the bank rate. Meanwhile, the GBP/USD pair is down by 0.60% to about 1.3570, as traders react to news about the US Federal Reserve’s rates.
US Dollar Index And Fed Policy
The US Dollar Index is at 97.82, reflecting expectations that the Federal Reserve will maintain its rates. The Fed is likely to keep rates between 3.50% and 3.75% in future meetings, as inflation remains high. Next, everyone is watching the US JOLTS Job Openings data, which is expected to show 7.2 million new jobs, up from 7.146 million previously.
The European Central Bank (ECB) is also expected to keep rates unchanged. Meanwhile, GBP/USD has dipped slightly below the 20-day EMA at 1.3601 but is still on an upward trend. The 14-day Relative Strength Index (RSI) sits at 50, indicating less bullish momentum. Key support is at 1.3500, with resistance levels ahead at 1.3733 and 1.3870.
The unexpected 5-4 vote to hold rates at 3.75% adds uncertainty to the market. This suggests that implied volatility on sterling options will likely increase soon. Traders should brace for larger price movements as they adjust to this dovish direction.
The difference in policies is becoming clear: our central bank is leaning dovish, while the Fed remains firm. This gap usually puts pressure on a currency, making short positions on the pound appealing. We see potential in buying put options on GBP/USD or selling sterling futures against the stronger dollar.
Economic Data And Market Trends
This outlook is supported by recent data showing UK headline CPI falling to 2.8% last month and GDP growth for Q4 2025 at a mere 0.1%. In contrast, the US added an impressive 225,000 jobs in January, with core inflation remaining stubbornly above 3%. This economic context supports a weaker pound against the US dollar.
With GBP/USD dropping below the crucial 1.3600 level, we are considering put options with strike prices around 1.3450 or 1.3400. Options expiring in late April or May seem suitable for capturing the period when the Fed is expected to keep rates steady. A sustained drop below the psychological level of 1.3500 would strongly confirm this downward trend.
We had a similar experience in 2014 when the market anticipated the Fed raising rates while the BoE stayed put. This policy divergence resulted in a significant decline in the pound against the dollar over several months. This historical trend may provide insight into the current market situation.
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