GBP/USD failed to extend a modest rebound from 1.3445, the week’s low, and traded in a tight range in Asia on Friday. It sat just under 1.3500 and was close to flat on the day, with downside risk still present.
UK politics weighed on Sterling after the Gorton and Denton by-election on 26 February drew allegations of illegal voting and a close contest between Labour, Reform UK, and the Green Party. The result from Thursday’s vote was still being counted, with an expected announcement on Friday between 3:00 am and 4:00 am GMT, while Bank of England easing expectations also limited demand.
Sterling Under Pressure In Asia
Sterling dipped to about 1.3485 in early Asian trade as uncertainty around the by-election persisted. Markets also looked ahead to US Producer Price Index data.
On Thursday, GBP fell 0.11% as the dollar held firm after US jobless claims came in below estimates. GBP/USD was at 1.3544 after touching an intraday high of 1.3575.
Broader sentiment weakened after Nvidia reported earnings and issued a solid outlook. US equities posted losses of between 0.28% and 2%.
We recall how political noise from the Gorton and Denton by-election impacted Sterling around this time last year, when the pair struggled at the 1.3500 handle. Now, with GBP/USD trading closer to 1.2850, the focus has shifted from local elections to the upcoming UK Spring Budget. This fiscal event is creating new uncertainty, suggesting continued pressure on the Pound in the coming weeks.
Policy Divergence And Trading Implications
The Bank of England’s easing bias, which we were just beginning to anticipate in early 2025, has since resulted in rates being cut to 4.75%. With the latest UK CPI data from January showing inflation remains stubborn at 3.1%, well above the 2% target, the market is pricing in at least one more rate cut by summer. This outlook should keep Sterling’s upside potential limited against its peers.
On the other side of the pair, the US labour market resilience we saw last year is showing signs of moderation. The most recent non-farm payroll report showed a gain of 195,000 jobs, a slowdown from the figures seen throughout much of 2025. This slightly softer data gives the Federal Reserve more reason to hold rates steady, creating a policy divergence that favours the US Dollar.
Given this backdrop, traders should consider positioning for further Sterling weakness. Buying GBP/USD put options with a strike price around 1.2800 could offer a cost-effective way to profit from a potential slide following the budget announcement. This strategy provides downside exposure while clearly defining the maximum risk.
Implied volatility is likely to increase as we approach the key UK fiscal and US data releases. This suggests that option premiums will become more expensive. Traders anticipating significant price swings, but unsure of the direction, could look at buying straddles to capitalize on the expected turbulence.
