Outlook
Sterling remains under pressure from the BoE hold and UK political jitters, with the next driver the BoE’s guidance and ECB signals. The BoE kept rates at 3.75% in a 5–4 vote, signaling a modestly dovish tilt that weighed on the pound. Markets are pricing around 25 basis points of cuts by June 2026. The pound trades near 1.36 against the dollar and around 1.15 per euro, with sensitivity to leadership headlines and ECB policy. A cautious BoE stance could lend some support to sterling even as a thin UK data calendar and a firmer US dollar cap momentum.
Key drivers
- BoE policy decision: 3.75% hold with a 5–4 vote, suggesting a dovish tilt and shift in rate-path expectations.
- UK economic signals: December 2025 retail sales +2.5% year-on-year; inflation at 3.4%; unemployment 5.1%—a mixed policy backdrop.
- Policy expectations: Markets price in about 25 bps of rate cuts by June 2026, keeping the policy path uncertain for sterling.
- FX and headlines: GBPUSD touched 1.3705 on Feb 3 as headlines and data shaped sentiment; ECB signals remain a key cross-market driver.
- ECB focus: ECB policy signals and stance will influence overall risk appetite and relative value of sterling.
Range
GBPUSD around 1.3616, 1.6% above its 3-month average of 1.3398, trading in a roughly 1.3050–1.3837 range over the past six months.
GBP/EUR around 1.1521, 0.6% above its 3-month average of 1.1456, within a 1.1322–1.1590 range.
GBP/JPY around 214.0, 2.3% above its 3-month average of 209.2, within a 202.0–214.2 range.
What could change it
- BoE communications: A clearer or more hawkish/firmer policy outlook could lift sterling; a clearer path to slower easing could weigh on or support the pound depending on framing.
- UK data releases: stronger-than-expected data could push the pound higher; weaker data could pull it lower.
- ECB policy signals: hawkish surprises could widen relative gaps and influence GBP sentiment; dovish ECB signals could support risk-friendly moves elsewhere.
- UK leadership headlines: positive headlines could support GBP; political uncertainty or negative leadership news could weigh.
- USD and risk sentiment: a firmer dollar or softer global risk appetite could pressure GBP; vice versa for risk-on environments.
