Pound Sterling rose against most major currencies, but not against the antipodean ones. It gained 0.23% to near 1.3520 versus the US Dollar during Wednesday’s European session.
This move came despite dovish comments from Bank of England Governor Andrew Bailey. On Tuesday, he told Parliament’s Treasury Committee there is room for interest rate cuts if inflation returns to the 2% target.
Bailey Keeps Rate Cut Timing Unclear
Bailey did not say a cut would happen at the next policy meeting. He called a rate cut at the next meeting “a genuinely open question”.
On Monday, Monetary Policy Committee member Alan Taylor urged two to three rate cuts in the near term. He pointed to downside risks to employment and signs that inflation pressures are easing.
A softer US Dollar also helped GBP/USD. The US Dollar Index fell 0.2% to around 97.65.
The Dollar weakened after President Donald Trump’s State of the Union address to Congress. He praised economic achievements and criticised the Supreme Court for ruling against tariffs.
Looking Back At Early 2025
At this time last year, in early 2025, the Pound was rising even as the Bank of England pointed clearly towards rate cuts. Markets focused on dovish comments from Governor Bailey and other MPC members, who were worried about rising unemployment. A weak US Dollar also helped lift GBP/USD towards 1.35.
Since then, conditions have changed a lot. The two rate cuts in mid-2025 did not bring inflation fully under control. January 2026 data showed inflation at a stubborn 2.8%, still above the 2% target. As a result, expectations have shifted. Futures markets now price in only one possible BoE rate cut for the rest of this year, far fewer than the two or three expected back then.
On the other side of the pair, the US Dollar did not stay weak. Stronger economic data and a Federal Reserve focused on sticky service-sector inflation pushed the Dollar Index from the 97s to around 104.50 today. This strength is the main reason GBP/USD now trades closer to 1.2550, well below the levels discussed a year ago.
Because of this gap, traders may want strategies that can benefit from large moves around key data releases. Buying straddles or strangles on GBP/USD options ahead of the next BoE meeting or a UK inflation report could make sense. These strategies can profit from a big move either up or down, as the market is split between sticky inflation and a slowing economy.
For traders with a directional view, the earlier strong downtrend in GBP may be fading now that inflation limits what the BoE can do. A cautious long position in GBP futures could be considered, as much of the dovish repricing may already be priced in. Hedging with short EUR/GBP positions could add protection, since the Eurozone economy shows deeper signs of weakness.
However, the jobs risks flagged in 2025 have not disappeared. The UK unemployment rate rose to 4.5% last month. If the labour market weakens further, the BoE could be pushed to change course, which would hurt long GBP positions. For that reason, tight stop-losses are advisable on any bullish Sterling trades in the coming weeks.
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