GBP/USD increased to 1.3685 during the early European session. The Bank of England is likely to maintain policy rates at its February meeting on Thursday. US Manufacturing PMI demonstrated stronger expansion in January.
The GBP/USD pair remained above 1.3650 as the Bank of England’s decision approaches. The Monetary Policy Committee voted 5-4 in December to cut rates, marking the fourth reduction in 2025. Economists expect the central bank to keep the rate at 3.75% due to ongoing inflation.
US Manufacturing PMI Impact
Conversely, the US Manufacturing PMI report rose to 52.6 in January, up from 47.9 in December. This suggests that the US Federal Reserve may hold rates steady for some time.
The Pound Sterling, the UK’s official currency, is the world’s fourth most traded currency. The Bank of England influences its value through monetary policy, focusing on achieving inflation targets.
Economic indicators like GDP, PMIs, and employment data impact the Pound’s value. A strong economy can attract foreign investments and influence the Bank of England’s interest rate decisions.
The Trade Balance, indicating the difference between a country’s exports and imports, can affect the Pound’s strength. A positive balance suggests greater demand for the currency.
Traders’ Expectations Ahead Of BoE Decision
We see the Pound Sterling holding its ground against the dollar, currently trading around 1.3685 ahead of the Bank of England’s decision this Thursday. The key tension for traders is the BoE’s hesitancy to cut rates further clashing with a strong US economy that bolsters the dollar. This sets the stage for significant movement following the announcement.
Looking back, we saw the Bank of England cut rates four times during 2025, but the last vote in December was a narrow 5-4 decision, signaling a clear divide. Recent data backs up this caution, as the UK’s Consumer Price Index (CPI) unexpectedly rose to 3.1% in January, well above the 2% target. This persistent inflation makes it very likely the BoE will hold rates at 3.75% for now.
On the other side of the pair, strong US economic data provides a headwind for any further GBP gains. The recent ISM Manufacturing PMI rose to an expansionary 52.6, and last week’s jobs report showed the US economy added over 250,000 jobs. This robust performance gives the Federal Reserve room to keep its own rates on hold for longer, supporting the US Dollar.
This uncertainty means we should expect a rise in implied volatility for GBP/USD options this week. Historically, implied volatility has jumped over 15% in the days leading up to a contentious BoE meeting, and this time should be no different. Options premiums will be higher, reflecting the increased possibility of a sharp price swing after the Thursday announcement.
For those anticipating a major breakout, purchasing long straddles or strangles could be a way to trade the volatility itself, regardless of direction. These strategies involve buying both a call and a put option to profit from a significant move. Conversely, if we believe the market has already priced in a hold, the elevated premiums could make selling options attractive for collecting income.
Traders with existing exposure should consider using options to hedge their positions against an adverse move. Key levels to watch are the 1.3650 support level, which has held firm, and potential resistance near the 1.3800 mark. A decisive break of this range after the BoE statement will likely dictate the trend for the coming weeks.
