Outlook
The pound is likely to stay rangebound in the near term, with direction driven by UK data and BoE signals rather than headlines from abroad. A robust domestic data flow and a BoE hold could keep GBP-supported, while political risk and softer data may cap gains.
Key drivers
- Economic resilience: UK Retail Sales and PMI beat forecasts, supporting a higher GBP tone. Markets expect the BoE to hold rates at the February meeting, keeping the yield advantage vs the US dollar intact.
- Inflation persistence: December inflation at 3.4% suggests limited near‑term room for aggressive BoE easing, helping to support the pound.
- Global policy divergence: The BoE remains cautious while the Fed has moved to lower rates, contributing to higher UK yields and relative GBP strength.
- Political risk: Local elections in May 2026 could drive volatility if investor sentiment shifts on policy or stability.
- Price action context: GBPUSD at 1.3692, about 2.5% above its 3‑month average (1.3359) and within a relatively stable 1.3019–1.3837 range; GBP/EUR around 1.1552 (90‑day high), about 0.9% above its 3‑month average (1.1443) within a 1.1322–1.1552 band; GBP/JPY around 211.9, about 1.7% above its 3‑month average (208.3) within a 200.0–213.8 range.
Range
GBP/USD around 1.3692, within a 1.3019–1.3837 range and about 2.5% above the 3‑month average of 1.3359. GBP/EUR around 1.1552, within 1.1322–1.1552, about 0.9% above the 3‑month average of 1.1443. GBP/JPY around 211.9, within 200.0–213.8, about 1.7% above the 3‑month average of 208.3.
What could change it
- A stronger-than-expected UK data run (retail, services, inflation) that reinforces BoE tightening or delay in cuts, supporting a firmer tone for GBP.
- A surprise UK inflation outcome pushing the BoE to rethink timing of rate moves.
- Political developments around the May local elections that alter risk appetite or policy expectations.
- Shifts in global policy or risk sentiment, particularly a quicker-than-expected Fed pivot or a shift in global growth dynamics, influencing relative yields.
- Unexpected UK–China or other international developments that meaningfully alter trade or growth prospects.
