GBP\/USD fell on Friday to about 1.3380, down 0.39% on the day, after a strong rise on Thursday following the Bank of England decision. The pair pulled back as the US Dollar regained ground amid a wider reassessment of global rate paths.<\/p>\n
The Bank of England kept its rate at 3.75%, and the vote was 9-0 to hold, compared with an expected 7-2 split. This contrasted with the prior 5-4 decision, and the BoE said it could respond if inflation stays persistent.<\/p>\n
The Monetary Policy Committee raised its third-quarter inflation outlook to about 3.5% from 2%, mainly due to higher energy prices linked to the Middle East war. Catherine Mann flagged the prospect of an extended hold or a rate rise, and Swati Dhingra said rates may need to increase.<\/p>\n
In the US, the Federal Reserve held rates at 3.50%\u20133.75% and kept a projection for one cut this year, while noting uncertainty linked to the Iran conflict. More officials now see no cuts this year, supporting the US Dollar.<\/p>\n
The US Dollar Index moved back towards 99.50 after a low near 99.00, and CME FedWatch put the chance of no change by year-end at 71.8%. Some banks said UK yield moves have supported sterling but may be overstretched, with oil and Middle East tensions remaining key drivers.<\/p>\n
Looking back at 2025, we saw the Bank of England take a surprisingly firm stance, with a unanimous vote to hold rates at 3.75% amidst war-driven energy fears. They were preparing for inflation to remain stubbornly high, forecasting it to hit 3.5% in the third quarter. This hawkish surprise that supported Sterling at the time was a direct response to those specific pressures.<\/p>\n
Today, the situation has clearly changed, as UK inflation has cooled significantly. The latest figures from the Office for National Statistics show the Consumer Prices Index (CPI) at 2.1% for February 2026, much lower than feared last year. Consequently, the BoE has shifted its policy and has since cut the Bank Rate to 3.00% to support a slowing economy.<\/p>\n
Across the Atlantic, the Federal Reserve has also begun a modest easing cycle, though its concerns in 2025 about uncertainty were well-founded. The Fed Funds Rate now sits at 3.25%-3.50%, a slight reduction from the hold we saw last year. This reflects US inflation running at a manageable 2.5%, allowing for a more cautious approach to rate cuts.<\/p>\n
This divergence in policy easing has pressured the GBP\/USD pair, which is now trading around 1.2950. The pound’s support from high-yield expectations that we saw in 2025 has evaporated as the BoE turned dovish. The market is now pricing in at least two more BoE cuts by year-end, which continues to cap any significant rallies for sterling.<\/p>\n
For derivative traders, this means volatility expectations should be adjusted for a rate-cutting environment rather than a holding one. Buying GBP\/USD puts could be a way to position for an acceleration in the BoE’s easing cycle, especially if UK growth data weakens further. Implied volatility in sterling options has fallen from the highs we saw during the geopolitical tensions of 2025.<\/p>\n
The fears surrounding the Middle East conflict and its impact on energy prices, which dominated the 2025 narrative, have largely subsided. Brent Crude oil prices have stabilized around $75 per barrel, a stark contrast to the spikes that drove the inflation forecast revisions last year. This removes a key pillar of support for the prolonged hawkish stance central banks held previously.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" GBP\/USD slipped to 1.3380 as dollar rebounded; BoE held 3.75% unanimously, inflation risks persist.<\/p>\n","protected":false},"author":103,"featured_media":17036,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-51916","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\/51916","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\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=51916"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/51916\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17036"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=51916"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=51916"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=51916"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}