GBP/USD Sees Minor Pullback, Uptrend Intact

Key Moments

GBP/USD Eases as BoE Expectations Pressure Sterling

GBP/USD trades on the back foot near 1.3605 during the early European session on Monday. Renewed expectations for a Bank of England (BoE) rate cut put pressure on the Pound Sterling (GBP) against the US Dollar (USD).

The BoE was widely expected to keep its policy rate unchanged at 3.75%. However, fewer Monetary Policy Committee (MPC) members voted to hold rates steady than the market had anticipated. This reinforced perceptions of a more dovish stance and contributed to GBP softness.

“We continue to expect the next rate cut in March. After that, we think the BoE will deliver a long pause before resuming policy normalization in early 2027 (terminal rate of 3.00% by mid-2027),” said Dani Stoilova, UK and Europe economist at BNP Paribas Markets 360.

Technical Landscape: Bullish Structure Intact Above 1.3580

On the daily chart, GBP/USD remains above the 100-day Exponential Moving Average (EMA), preserving a medium-term bullish tone. As long as the pair stays above this trend indicator, downside moves may attract buying interest.

Bollinger Bands show the spot above the middle band while the bands widen, signaling strengthening momentum. The Relative Strength Index (RSI) stands at 52, a neutral reading, but it remains above the 50 threshold, maintaining a slight bullish tilt.

The 20-day middle Bollinger Band aligns with 1.3580 and acts as initial support. Trading above this level keeps focus on the upside, with the upper Bollinger Band offering resistance at 1.3870. A decisive break below 1.3580 would shift attention to 1.3290 at the lower band, which is the next significant support zone.

(The technical analysis of this story was written with the help of an AI tool.)

Pound Sterling: Background and Key Drivers

What is the Pound Sterling?

The Pound Sterling (GBP) is the official currency of the United Kingdom. It is the oldest currency in the world, dating back to 886 AD. The Pound is the fourth most traded currency globally, representing 12% of all FX transactions, with an average daily turnover of $630 billion in 2022.

Major currency pairs involving GBP include GBP/USD, commonly called “Cable,” which accounts for 11% of FX turnover; GBP/JPY, known as the “Dragon,” with a 3% share; and EUR/GBP, which makes up 2%. The Bank of England (BoE) issues the Pound.

Bank of England Policy and Its Impact on GBP

Monetary policy from the BoE is the main factor affecting GBP. The BoE targets “price stability,” aiming to keep inflation close to 2%. Its primary tool is the adjustment of interest rates.

When inflation exceeds the target, the BoE raises rates to curb it. Higher borrowing costs support GBP because UK assets become more attractive to international investors.

Conversely, if inflation falls too low, it signals slower growth. The BoE may then cut rates to lower borrowing costs and encourage investment, which can weigh on the currency.

Role of Economic Data in Sterling Valuation

Economic indicators are key gauges of the UK economy and can significantly affect GBP. Data such as GDP, Manufacturing and Services PMIs, and labor market figures influence the Pound’s direction.

Strong readings support Sterling, as they attract foreign capital and may prompt the BoE to raise rates. Weak data usually exerts downward pressure on the currency.

Trade Balance and Its Effect on the Pound

The Trade Balance is another important factor. It measures the difference between UK exports and imports over a period.

When UK goods and services are in demand abroad, foreign buyers convert funds to GBP, supporting the currency. A positive Trade Balance strengthens GBP, while a negative balance tends to weaken it.