The BoE kept rates at 3.75% in February after a 5-4 vote, with four members backing a 25 basis point cut. UK data this week supported the case for easing, keeping a March cut possible.
Unemployment rose to 5.2% and payrolls fell by 30K, based on Tuesday’s labour report. Wednesday’s CPI showed headline inflation down to 3%, while the Retail Price Index eased to 3.8%.
Bank Policy And Market Reaction
In the US, FOMC minutes described growth as “solid” and said progress towards the 2% inflation target may be “slower and more uneven”. Some members said rate rises could still occur if inflation picks up again.
GBP/USD fell to about 1.3434, extending a decline from the late-January high at 1.3869. The pair moved below the 50-day EMA at 1.3520 and neared the 200-day EMA around 1.3420.
Support levels were cited near 1.3415 and 1.3344, with resistance at 1.3526 and 1.3600. The Pound dates to 886 AD and makes up 12% of FX trading, or $630 billion a day (2022), with GBP/USD at 11%, GBP/JPY at 3%, and EUR/GBP at 2%.
Looking back a year, we recall the Bank of England’s tight 5-4 vote in February 2025, which held rates at 3.75% but signaled a strong desire for cuts. At the same time, the US FOMC was striking a hawkish tone, concerned that inflation progress was stalling. This policy divergence set the stage for the Pound’s trajectory over the last year.
Outlook Into March Meetings
That divergence played out as we expected, with the Bank of England delivering two rate cuts in the second half of 2025, bringing the bank rate down to its current 3.25%. Meanwhile, the Federal Reserve has held its funds rate steady in a higher-for-longer stance, widening the interest rate differential against the pound. This fundamental pressure has been a key driver for Cable’s performance.
As of today, February 20, 2026, the case for further BoE easing is becoming complicated. While last month’s GDP data confirmed the economy was flat in the fourth quarter of 2025, the most recent CPI reading for January 2026 showed inflation ticking back up to 2.8%. This sticky inflation creates a dilemma for the central bank and uncertainty for traders.
In the US, the narrative remains centered on a strong economy, with the latest jobs report from early February showing payrolls expanding by a solid 195,000. Core PCE, the Fed’s preferred inflation gauge, registered at 2.7% last month, which is a slow but steady drift towards their target. This allows the Fed to remain patient, reinforcing the dollar’s relative strength.
Given the weak UK growth outlook and the persistent yield advantage of the US dollar, traders should view any strength in the GBP/USD pair as a selling opportunity. We see the path of least resistance as being lower for Cable heading into the March central bank meetings. Using derivative strategies that profit from downside or range-bound price action is prudent.
For the coming weeks, we believe buying GBP/USD put options with strike prices below 1.2400 offers a well-defined risk-reward profile. Implied volatility has been moderate, making options relatively affordable for positioning ahead of key data. This strategy allows traders to capitalize on a potential drop toward the 2024 lows without the unlimited risk of shorting the spot market.
