GBP/USD rose in the North American session on Wednesday as the US Dollar stalled amid uncertainty over US trade policy. The pair traded at 1.3523, up 0.29%.
Limited US and UK data left markets focused on remarks from Federal Reserve and Bank of England officials, plus expectations for interest-rate moves. The BoE previously held the Bank Rate on a 5-4 vote split, and money markets have priced 18 basis points of easing by the 19 March meeting.
Central Bank Signals And Market Pricing
BoE Governor Andrew Bailey said a March cut is possible, while noting services inflation remains high. In the US, Chicago Fed President Austan Goolsbee said cuts are appropriate if inflation falls, but warned against “front loading” reductions without evidence inflation is moving towards the Fed’s 2% goal.
Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin pointed to a stable but loosening labour market and uneven inflation progress. Markets do not expect a Fed cut at the next meeting, while traders have priced 50 basis points of easing for the rest of the year, based on Prime Market Terminal data.
On Thursday, the UK calendar is empty, with comments due from BoE’s Lombardelli. In the US, traders will watch Initial Jobless Claims and a speech by Fed Governor Michelle Bowman.
Technically, GBP/USD traded around 1.3528, between support from 1.3035 and resistance from 1.3869. Resistance is near 1.3560, with upside levels at 1.3680 and 1.3835; support is near 1.3500, then 1.3460 and 1.3400.
Shift In Policy Divergence Since Early 2025
Looking back at the sentiment in early 2025, we saw markets anticipating parallel rate cuts from both the Federal Reserve and the Bank of England. Today, the situation has dramatically changed, with economic data from early 2026 showing a clear policy divergence between the two central banks. This split is now the primary driver for the pound-dollar exchange rate.
The potential for a BoE rate cut, which we saw as a possibility in March 2025, is no longer on the table due to stubbornly high services inflation, which registered 5.9% in the latest January report. As a result, derivatives markets are now pricing in almost 30 basis points of further tightening from the Bank of England by year-end. This hawkish repricing suggests underlying support for Sterling, making long positions on significant dips a viable strategy.
In the United States, while the 50 basis points of cuts we anticipated for 2025 did occur, the pace of further easing has stalled. The surprisingly strong January 2026 jobs report, which showed the economy adding 225,000 new jobs, has pushed back expectations for a cut in March. The CME FedWatch Tool now shows the probability of a March rate cut has fallen to just 15%, providing a firm floor for the US Dollar.
This policy tension means we should prepare for increased volatility in the coming weeks. Implied volatility in 3-month GBP/USD options has risen from around 6.5% late last year to over 8.2%, signaling that the market expects larger price swings. Traders should consider using options structures, such as strangles, to capitalize on a potential breakout from the recent range.
The technical picture we analyzed in 2025 is now obsolete, as the ascending support trendline near 1.3500 was decisively broken late last year. That former support level now acts as major resistance, with the pair currently struggling around 1.3310. The key level to watch on the downside is the post-Brexit support area around 1.3200.
