GBP/USD rose by 0.60% as the US Dollar saw a decline, while the BoE maintained a dovish stance. Despite this uptick, GBP/USD remains on course for a 0.56% weekly loss.
The US Dollar Index fell 0.37% to 97.59 after peaking at 98.03. The BoE left interest rates unchanged but suggested potential cuts if disinflation progressed. BoE Governor Bailey indicates a further rate reduction, with Chief Economist Huw Pill noting inflation’s decline and subdued private-sector growth.
Softer Job Data Influences Market
In the US, softer job data led to market reactions, with initial gains by the Dollar being reversed. Job openings decreased, layoffs rose, and Jobless Claims increased, raising the likelihood of Fed rate cuts by 2026. Consumer Sentiment improved slightly in February, with slight changes in inflation expectations.
Upcoming US data, delayed by a government shutdown, includes Nonfarm Payrolls and CPI. In the UK, GDP figures and a speech by BoE’s Bailey could influence movements despite political turmoil. Technical analysis indicates GBP/USD needs to maintain above 1.3600 to challenge higher levels, while a fall below could result in lower support tests.
We are seeing a tug-of-war in GBP/USD, with the pound’s recent rebound being driven more by US dollar weakness than by its own strength. The Bank of England’s clear signal that it is leaning toward cutting rates is putting a ceiling on how high the pair can go. This creates a challenging environment where rallies might be short-lived.
The Bank of England’s dovish stance is understandable when we look at the data from late 2025. UK headline CPI dropped to 3.8% in December 2025, a significant fall from the highs seen earlier that year, reinforcing the disinflation narrative. With private sector growth also remaining subdued, the pressure on the BoE to ease policy is building.
US Dollar Faces Pressure with Cooling Labor Market
On the other side, the US dollar is losing its footing as the labor market shows clear signs of cooling. We saw Nonfarm Payrolls in the final quarter of 2025 consistently coming in below 200,000, and the latest initial jobless claims figures for January 2026 have crept up to the 225,000 level. This trend is fueling bets that the Fed will have to cut rates soon, weighing on the dollar.
The upcoming delayed US jobs and inflation reports are now the main event for the coming weeks. We believe these figures will heavily influence expectations of whether the Fed or the BoE will cut rates first, creating significant volatility. Options traders should be prepared for sharp moves in either direction following these releases.
For now, the 1.3600 level is the immediate battleground for GBP/USD. We would consider buying short-dated call options if the price holds firmly above this level with a target near the 1.3662 high. A failure to hold 1.3600 could open the door for put options targeting the weekly low of 1.3508 and potentially the 50-day moving average near 1.3463.
Finally, the political noise surrounding the Prime Minister should not be ignored. This adds a layer of uncertainty, which could cause implied volatility on GBP options to rise. This reflects the risk of sudden, headline-driven price swings that are not tied to economic data.
