GBP/USD fell for a third day on Thursday, moving away from a one-week high near 1.3715. It stayed above 1.3600 in early Europe and showed little reaction after weak US data.
UK figures added pressure on sterling. Output rose 0.1% in the three months to December 2025, below the 0.2% forecast, while Q4 2025 GDP rose 1.0% year on year versus 1.2% expected.
Uk Data Weighs On Sterling
Industrial and manufacturing production, plus the trade balance, also missed estimates. Markets continued to price in a Bank of England rate cut in March.
The US dollar was supported after traders reduced expectations of a March Federal Reserve cut following strong nonfarm payrolls data on Wednesday. Comments from two Federal Open Market Committee members also backed the dollar, lifting it from a near two-week low.
Even so, markets still priced at least two 25 basis point Fed cuts in 2026. Attention turns to US weekly initial jobless claims, then US consumer inflation figures due on Friday.
A correction noted Q4 2025 UK GDP growth was 1.0% year on year, not 1.3%.
Trade Idea And Key Risks
We see the British Pound weakening due to poor economic data from late 2025, a trend that justifies bets on a Bank of England rate cut next month. The 1.0% annual GDP growth for the fourth quarter of 2025 is concerningly low, reminiscent of the stagnation we saw back in 2023 which ultimately led to a shallow recession. This weak foundation for the UK economy suggests further downside for the pound against the dollar.
Conversely, the US dollar is strengthening as the market re-evaluates the Federal Reserve’s path after last week’s robust jobs report. The recent Nonfarm Payrolls report showing job growth well over 250,000, similar to the surprise readings in early 2024, has significantly reduced the odds of a rate cut in March. As of today, federal funds futures show the market is pricing in only a 20% chance of a March cut, down from over 60% just a few weeks ago.
The immediate focus for us must be tomorrow’s US consumer inflation data. This single report will likely dictate the dollar’s direction for the coming weeks and heavily influence the GBP/USD pair. A reading above the consensus forecast of 2.9% would likely reinforce the Fed’s patient stance and could push the currency pair decisively below the 1.3600 support level.
Given this backdrop, we should consider buying GBP/USD put options to position for a potential decline. A put option with a strike price around 1.3550 expiring in late March would offer a way to profit from the expected policy divergence between the two central banks. This strategy also clearly defines our maximum risk ahead of tomorrow’s volatile inflation release.
For those with a higher tolerance for risk, selling GBP/USD futures contracts could be a more direct approach, but caution is essential. The key is that the fundamental story, a weakening UK economy forcing the BoE to cut rates while a resilient US economy allows the Fed to wait, supports a lower exchange rate. We should use any short-term rallies in the pair as opportunities to initiate bearish positions.
