Sterling has remained firm even as markets cut Bank of England tightening expectations to one 25bp rate rise this year, while ING expects no change in rates. ING says the 25bp hike may stay priced in until oil prices fall.
UK politics is also in focus, with Prime Minister Keir Starmer due to make a statement in parliament about the approval process for former UK ambassador to the US, Peter Mandelson. A senior civil servant involved in the process is scheduled to appear at a parliamentary hearing tomorrow.
Sterling Outlook And Near Term Risks
ING warns that GBP/USD could give back recent gains this week. It points to 1.3380/1.3400 as an initial downside target.
The article was produced with the help of an Artificial Intelligence tool and reviewed by an editor.
Looking back to early 2025, we saw Sterling perform reasonably well even while the market was removing expected Bank of England rate hikes. Our view at the time was for rates to remain unchanged, and that proved correct as the Bank Rate held at 5.25% throughout the entire year. That period of political noise did contribute to GBP/USD giving back its gains, with the pair falling back towards our 1.3400 target during the second quarter of 2025.
The situation today on April 20th, 2026, is fundamentally different, as the conversation has shifted from holding rates to cutting them. The latest data from the Office for National Statistics shows UK CPI inflation has now fallen to 2.1%, putting it right near the Bank’s target. Consequently, interest rate markets are now pricing in at least two 25 basis point cuts before the end of this year, putting sustained pressure on the pound.
Derivative Positioning For A Weaker Pound
For derivative traders, this outlook suggests positioning for further Sterling weakness against the dollar. Buying GBP/USD put options with strike prices around 1.2650 and 1.2700 could provide effective downside protection. Given the Bank of England’s upcoming meeting in May, implied volatility may rise, so establishing these positions in the coming weeks seems prudent.
We also note that political uncertainty is a factor once again, similar to the parliamentary scrutiny the Prime Minister faced last year. The upcoming local elections in May are creating nervousness about the government’s fiscal stability and could weigh on investor sentiment. This reinforces the case for a weaker Sterling and makes bearish derivative strategies more compelling through the second quarter.
