Bank Of England’s Inflation Concerns
The Bank of England remains concerned about high inflation, with members expressing worries about potential risks. UK Retail Sales for November fell from 1.5% YoY to 1.2%, below forecasts of 2.4%, impacting GBP/USD.
Technically, GBP/USD appears neutral to upward biased, but risks further losses given its breach of the 200-day SMA. Further support lies at the 50-day SMA at 1.3259, with potential declines towards the 20-day SMA at 1.3201 and the 1.3150 area.
The US dollar is gaining strength, and we see the British pound weakening because of it. Stronger than expected American job openings data has pushed the GBP/USD pair below the key 200-day moving average, a bearish signal for us. All eyes are now on the Federal Reserve’s policy decision coming up this week.
To support this view, we can see that recent US inflation data from November 2025 showed core CPI holding firm at 3.8%, which is still significantly above the Fed’s 2% target. This, combined with the strong JOLTS report, gives the Fed every reason to maintain its restrictive stance. In contrast, the UK economy is showing signs of slowing down, with last week’s data confirming just 0.1% GDP growth for the third quarter of 2025.
Positioning For Further Downside
The Federal Reserve is therefore likely to signal that interest rates will remain higher for longer, which will continue to attract capital to the US dollar. The market is pricing in a hawkish pause, where the Fed holds rates but emphasizes that the fight against inflation is not over. This outlook puts further downward pressure on other currencies like the pound.
Meanwhile, the Bank of England is in a difficult position. Members are openly worried about persistent inflation, but the weak retail sales and stagnant growth limit their ability to raise rates further without risking a recession. This policy conflict creates uncertainty, which is typically negative for a currency.
Given this divergence, we should consider positioning for further downside in GBP/USD over the coming weeks. Buying put options on the pound offers a way to profit from a potential drop, especially if the Fed delivers a hawkish message that pushes the pair toward its next support levels. This strategy also provides a hedge against any long sterling positions we might hold.
We saw a similar dynamic play out in late 2022, when the Fed’s aggressive rate-hiking cycle far outpaced the Bank of England’s, leading to a sharp decline in the GBP/USD exchange rate. That period of policy divergence provides a historical template for what we might expect now. The current combination of a robust US labor market and a fragile UK economy is echoing that pattern.
With the break below the 200-day moving average at 1.3331, our immediate focus shifts to the next technical support level. We will be watching the 50-day moving average at 1.3259 closely. A decisive break below that could open the door for a slide toward the 1.3200 area.
