GBP/USD fell on Tuesday after Monday’s rebound from 1.3510, ending at 1.3641, down 0.39%. It dropped from 1.3700 and formed a bearish daily candle near the 50% Fibonacci level of the 1.3869–1.3510 fall, around 1.3690.
Price remains above the 50 EMA at 1.3512 and the 200 EMA at 1.3352. However, the decline from 1.3869 has created a lower-high pattern that may weaken the uptrend.
BoE Policy And Uk Politics
Recent Bank of England dovishness followed a 5-4 vote to hold rates at 3.75%. UK political uncertainty linked to Prime Minister Starmer’s leadership is also weighing on the Pound.
The Stochastic Oscillator (14, 5, 5) is 51.21/57.04, with %K crossing below %D in neutral territory. This points to softer momentum ahead of Wednesday.
On Wednesday at 5:30 AM, the BLS releases the delayed January NFP report, with consensus at 70K versus December’s 50K. It also includes the benchmark revision, unemployment rate (4.4%), and earnings (0.3% MoM, 3.6% YoY).
At 11:00 PM, the UK reports preliminary Q4 GDP (0.2% QoQ versus 0.1% prior), December GDP (0.1% MoM), and December industrial and manufacturing output (both 0% MoM). Three Fed speakers, Schmid, Bowman, and Hammack, are also scheduled.
Strategy Outlook And Risk
We see the GBP/USD pair showing signs of exhaustion around the 1.2750 mark, failing to hold onto recent gains. This price action feels familiar, reminding us of the situation back in early 2025 when a recovery stalled near 1.3700. The underlying momentum appears to be shifting, suggesting that any rallies may be short-lived opportunities to position for weakness.
The core issue remains the growing policy gap between a cautious Bank of England and a more steadfast Federal Reserve. Recent UK inflation data for January 2026 came in at 2.9%, supporting the view that the BoE will be forced to cut rates sooner rather than later. This contrasts sharply with the US, where a strong jobs report last week showed 210,000 new payrolls and inflation remains sticky at 3.2%, giving the Fed little reason to ease policy.
Given this fundamental backdrop, volatility is likely to increase, making option strategies attractive. Buying put options on GBP/USD could provide downside protection against a potential slide towards the 1.2600 support level in the coming weeks. This approach allows traders to define their risk while capitalizing on the expected weakness in the pound.
We remember looking at the market in February 2025, where a dovish 5-4 split vote from the Bank of England put a firm ceiling on the pound’s strength. The subsequent UK Q4 GDP data from that period, which came in at a meager 0.1%, confirmed our bearish bias at the time. The current environment is mirroring that past event, as slowing economic growth is once again pushing the Bank of England towards a more dovish stance.
