Bias: Bearish-to-range-bound USD/GBP, current level below the 90-day average and in the lower half of the 3-month range.
Key drivers:
- Rate gap: The Fed is expected to ease toward neutral while the BoE signals only gradual easing; the narrowing gap supports a firmer pound, though any unexpected US data can quickly tilt the balance.
- Macro factor: UK inflation is expected to ease toward the BoE target later in 2026, supporting a steadier path for the pound, while domestic growth remains a watchpoint.
- Risk appetite: Global risk mood and energy price moves influence sterling differently than the dollar, shaping its direction through inflation expectations and trade dynamics.
Range: The pair is likely to drift within the recent 3-month range, staying nearer the lower end amid light liquidity and data catalysts.
What could change it:
- Upside risk: A hawkish Fed tone or stronger US payrolls data that keeps the dollar firm and pushes USD/GBP higher, especially if UK data stays soft.
- Downside risk: Strong UK data or a softer dollar driven by bets of faster Fed easing that pushes USD/GBP lower, particularly if European currencies catch a bid.
