GBP/USD trades near 1.3605 during Monday’s early European session, maintaining a bullish stance above the 100-day EMA. Initial support is at 1.3580, with resistance at 1.3870. The pair operates under pressure due to expectations of a Bank of England (BoE) rate cut.
The BoE is anticipated to keep rates at 3.75%, though fewer MPC members than expected support this. Analysts forecast a rate cut in March, followed by a pause before policy normalisation in 2027. The GBP/USD daily chart indicates sustaining strength above the 100-day EMA, with Bollinger Bands widening and RSI at 52.
Trading Focus and Support Levels
Holding above the 20-day middle band at 1.3580 keeps the focus on the topside, with resistance capping at 1.3870. A break below could target support at 1.3290.
The Pound Sterling is the UK’s currency, heavily influenced by BoE’s monetary policy. Decisions on interest rates and economic data like GDP and PMIs impact its value. The Trade Balance also affects the currency; positive net exports strengthen it, while a negative balance does the opposite. Sterling accounts for 12% of global FX transactions, averaging $630 billion daily.
We are seeing GBP/USD hover around 1.3610, holding the key support level we watched throughout the latter half of 2025. The market is now pricing in just a 55% chance of a Bank of England rate cut in March, a notable decrease from the near-certainty priced in during the fourth quarter of last year. This growing uncertainty ahead of the next Monetary Policy Committee meeting presents clear opportunities for derivative traders.
Currency Volatility and Trading Strategies
Looking back at the analysis from 2025, the expectation for a rate cut was based on a steady decline in inflation. However, the most recent CPI data for January 2026 came in at a stubborn 2.7%, while the final GDP figures for Q4 2025 confirmed a slight 0.1% contraction in the UK economy. This difficult mix of sticky inflation and stagnant growth complicates the Bank’s decision and fuels currency volatility.
Given this backdrop, we believe purchasing volatility using options strategies is a prudent approach for the coming weeks. The 1.3600 level remains the critical pivot point; a decisive break below it could trigger a move towards the 1.3290 zone. Traders could consider buying put options with a strike price around 1.3550 to position for a potential dovish surprise from the Bank of England.
On the other hand, if upcoming UK jobs or wage data comes in hotter than expected, it could force the market to price out a March cut entirely. This would likely see the pair test the 1.3870 resistance that capped the highs we saw late last year. Buying out-of-the-money call options provides a low-cost way to position for this upside scenario.
