Outlook
The GBP faces a cautious path as UK political tensions weigh on sentiment and the BoE adopts a more cautious stance. Markets price a 25bp rate cut by June 2026, keeping downside risks intact unless domestic data improve. GBP/USD has traded around the high 1.36s to 1.37, with recent moves reflecting a balance between political risk and anticipated policy easing.
Key drivers
- UK political tensions continue to weigh on sterling, including questions over Labour leadership and related uncertainty.
- Bank of England policy shifted to a more dovish stance, with rates held at 3.75% in a 5–4 vote and markets pricing in a June 2026 rate cut.
- Mixed domestic data: December 2025 UK retail sales up 2.5% year on year, with inflation at 3.4% and unemployment at 5.1%.
- GBP/USD movement remains sensitive to policy expectations and risk sentiment; current near 1.37, after a 1.3705 peak on February 3, 2026.
- Recent price data show GBPUSD around 1.3681 (about 2.0% above the 3-month average of 1.3414) within a 6.0% trading range (1.3050–1.3837); GBP/EUR near 1.1492 (14-day lows), just above its 3-month average (within 1.1322–1.1590); GBP/JPY around 213.6 (1.9% above the 3-month average of 209.6), within 202.8–214.3.
Range
GBP/USD around 1.3681, 2.0% above its 3-month average of 1.3414, having traded in a 6.0% range from 1.3050 to 1.3837. GBP/EUR near 1.1492 (14-day lows), just above its 3-month average, with a 3-month range from 1.1322 to 1.1590. GBP/JPY around 213.6, 1.9% above its 3-month average of 209.6, within a range from 202.8 to 214.3.
What could change it
- A more hawkish BoE stance or an earlier-than-expected rate increase could lift the pound.
- A clearer or quicker policy easing path than currently priced could weigh on GBP.
- Resolving or intensification of UK political uncertainty could shift sentiment materially.
- Stronger-than-expected UK data (inflation, wages, retail), or shifts in global risk appetite, could alter the near-term trajectory.
