The Pound Sterling falls against major currencies after the Bank of England (BoE) decides to leave interest rates at 3.75%. The decision, made with a 5-4 vote, continues the BoE’s “gradual monetary easing” approach without a clear timeline for rate cuts.
In the latest meeting, MPC members Swati Dhingra, Alan Taylor, Sarah Breeden, and Dave Ramsden suggested a 25 basis point cut. Since December, the BoE has maintained a gradual reduction in the bank rate. Concurrently, the GBP/USD pair trades lower by 0.60% to approximately 1.3570, as speculation about the US Fed’s rate stance influences market behaviour.
US Dollar Index And Fed Policy
The US Dollar Index reaches 97.82, driven by anticipated steady rates from the Federal Reserve. The Fed is expected to maintain rates between 3.50%-3.75% in upcoming meetings, as inflation remains above target. Attention turns to US JOLTS Job Openings data, predicting 7.2 million new positions, surpassing 7.146 million in the prior read.
The European Central Bank (ECB) is also expected to keep rates steady. Meanwhile, GBP/USD dips slightly under the 20-day EMA at 1.3601 but remains in an upward trend. The 14-day RSI neutralised at 50 suggests reduced bullish momentum, with key price support at 1.3500 and upcoming resistance levels at 1.3733 and 1.3870.
The Bank of England’s unexpected 5-4 split to hold rates at 3.75% introduces significant uncertainty into the market. This suggests implied volatility on sterling options will likely rise in the coming weeks. We should be prepared for bigger price swings as traders digest this dovish turn.
The divergence in policy is becoming clear, with our central bank leaning dovish while the Fed stays firm. This policy gap often weighs on a currency, making short positions on the pound attractive. We see value in buying put options on GBP/USD or selling sterling futures against the stronger dollar.
Economic Data And Market Trends
This view is reinforced by recent data, which showed UK headline CPI falling to 2.8% last month and Q4 2025 GDP growth at a sluggish 0.1%. In contrast, the US just reported adding a strong 225,000 jobs for January, and their core inflation remains sticky above 3%. This fundamental backdrop supports a weaker pound sterling relative to the US dollar.
With GBP/USD breaking below the key 1.3600 level, we are looking at put options with strike prices around 1.3450 or 1.3400. Expirations in late April or May seem appropriate to capture the period where the Fed is expected to hold rates steady. A sustained break below the 1.3500 psychological level would be a strong confirmation of this downward trend.
We saw a similar pattern unfold back in 2014, a time when the market anticipated the Fed raising rates while the BoE remained on hold. That policy divergence led to a multi-month, significant decline in the pound against the dollar. This historical precedent provides a potential roadmap for the current market setup.
