GBP\/USD declined by 0.8% to 1.3550. There is an increased expectation that the Bank of England will reduce the bank rate by 25 basis points at the upcoming March meeting. <\/p>\n
The probability of a rate cut rose from 18.6% to 61%. Additionally, there is an increased political risk premium for GBP due to a crisis concerning Prime Minister Keir Starmer. <\/p>\n
This article was generated using Artificial Intelligence and reviewed by an editor. The FXStreet Insights Team, comprising journalists, selects market observations from experts for publication.<\/p>\n
We saw this exact scenario play out in early 2025 when a combination of political turmoil and shifting rate cut odds sent GBP\/USD tumbling to 1.3550. That sharp move was triggered when market expectations for a March 2025 rate cut jumped from under 20% to over 60% in a very short period. This created a perfect storm for sterling weakness, reminding us how quickly sentiment can turn.<\/p>\n
The Bank of England did indeed cut rates by 25 basis points in March 2025, as the market had predicted. The move was a response to UK inflation falling faster than expected, dropping to 3.1% in the year to January 2025, which gave the central bank room to act. Looking back, this event established a precedent for the BOE prioritising growth over a stubbornly high base rate.<\/p>\n
Now, in February 2026, we see echoes of this situation developing again. Current UK inflation has proven sticky at 2.9%, but recent business surveys show a worrying slowdown in the services sector, a key engine of the UK economy. The market is currently pricing in only a 30% chance of a rate cut at next month’s meeting, which seems low given the historical context and weakening data.<\/p>\n
This divergence between market pricing and economic reality suggests implied volatility in GBP options is too cheap. The 3-month GBP\/USD implied volatility is currently trading near 8.2%, below the average of 9.5% we saw during the uncertain periods of last year. This presents an opportunity to buy volatility before a potential repricing event.<\/p>\n
Considering the risk of another sudden sterling downturn, traders should consider buying GBP\/USD put options with a three-month expiry. This strategy offers a clear, cost-defined way to profit from a fall in the exchange rate if the Bank of England signals a more dovish stance. It directly plays on a repeat of the pattern we witnessed this time last year.<\/p>\n
For those expecting a significant move but unsure of the direction, a long strangle might be more appropriate. By buying both an out-of-the-money put and an out-of-the-money call, traders can profit if GBP\/USD breaks sharply in either direction. This would be effective if the BOE meeting next month delivers a major surprise, be it a hawkish hold or an unexpected rate cut.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" GBP\/USD falls 0.8% as rate cut expectations rise; political risk adds pressure on sterling.<\/p>\n","protected":false},"author":62,"featured_media":17030,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-41151","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/41151","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=41151"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/41151\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17030"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=41151"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=41151"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=41151"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}