Key Moments
- GBP/USD registered a fifth straight daily loss, touching 1.3445 as the downtrend persisted.
- Headline UK inflation slowed to 3.0% in January, but services inflation held at 4.4%, above expectations and indicative of firm domestic price pressures.
- Markets currently price an approximately 85% probability of a 25bp Bank of England rate cut next month, with two such cuts fully priced in by year-end.
Macro Drivers Weigh on Sterling
GBP/USD extended its decline for the fifth consecutive session, dropping to 1.3445 as shifting monetary policy expectations put renewed pressure on the pound. A moderation in overall price growth has strengthened the case for a near-term Bank of England rate reduction, even as underlying inflation dynamics remain relatively firm.
Headline annual inflation slowed to 3.0% in January from 3.4% in December, matching consensus projections. However, services inflation – a key gauge of domestically driven price pressures – eased only slightly to 4.4% from 4.5%, overshooting expectations for 4.3%. This more resilient services reading offered some support to sterling and tempered the downside.
Earlier, the pound had come under pressure following weaker labor market data, which had reinforced expectations that the Bank of England could soon begin easing policy.
Market Interpretation and Rate Expectations
Chris Turner, Head of Global Research at ING, noted that market participants had anticipated a more pronounced deceleration in inflation, though the latest figures did not present a clear-cut weak picture. According to Turner, the stronger-than-forecast services component provided sterling with “only limited respite.”
Interest rate markets now reflect around an 85% probability that the Bank of England will deliver a 25bp rate cut next month. By the end of the year, pricing implies two 25bp cuts are fully factored in.
Political Backdrop Adds to Uncertainty
Domestic politics continue to contribute to uncertainty around the pound. An upcoming parliamentary by-election in Greater Manchester has the potential to revive debate over Prime Minister Keir Starmer’s leadership if Labour fails to secure victory. ING assesses that a significant setback for the party could intensify pressure on both sterling and the UK government bond market.
Technical Picture: Persistent Downtrend
From a technical standpoint, the H4 chart continues to show a strong bearish structure. After forming a sequence of lower highs, GBP/USD broke decisively below the 1.3490-1.3500 area, accelerating its decline toward 1.3430-1.3440. Price action is hugging the lower band of the Bollinger Bands, underscoring the prevailing seller dominance.
Attempts at short-term rebounds have been shallow and quickly faded. The nearest resistance is now located at 1.3490-1.3520, with an additional resistance level seen at 1.3660. On the downside, support is identified at 1.3430; a clear break beneath this level would point to the potential for further downside.
| Level / Indicator | Zone / Value | Implication |
|---|---|---|
| Recent low in GBP/USD | 1.3445 | Marks fifth consecutive day of losses |
| Key resistance (near term) | 1.3490-1.3520 | Likely cap for corrective bounces |
| Next resistance | 1.3660 | Higher hurdle if recovery extends |
| Immediate support | 1.3430 | Break below signals scope for deeper losses |
Intraday Dynamics and Volatility
On the H1 timeframe, the pair experienced a sharp sell-off on 19 February, followed by a tight consolidation phase near the lows. The Bollinger Bands on this shorter horizon have started to contract, indicating that volatility is receding after the earlier abrupt move.
Price is currently fluctuating around the 1.3430-1.3450 area. A sustained move back above 1.3490 would be needed to trigger a more substantial corrective rebound. As long as the pair remains below 1.3490, the bearish structure on the intraday chart stays in force.
Outlook for GBP/USD
Overall, GBP/USD remains firmly entrenched in a downtrend, with selling pressure extending the losing streak to five sessions. While the slowdown in headline inflation aligns with expectations, persistent services inflation and broader underlying price pressures complicate the Bank of England’s policy decisions. Market pricing continues to reflect expectations for a rate cut next month, alongside additional easing later in the year, while political risks provide an additional layer of uncertainty.
From a technical perspective, the pair has broken through important support and is trading with a clearly negative bias. Any corrective advances are likely to encounter resistance around 1.3490-1.3520, while a decisive move below 1.3430 would suggest room for further downside. The short-term outlook remains negative unless the price can reclaim and hold above the 1.3490 level.
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