GBPUSD: Cable softens ahead of BoE rate decision

We have thus reached the day of the policy meetings and interest rate decisions of the European Central Bank and the Bank of England.

We find the situation at the “Old Lady” (the BOE) particularly interesting. The UK economy has been steadily slowing over recent quarters, with the annual GDP growth rate decelerating from +1.9% in Q4 2024 to +1.3% in the same period of 2025. Labour market conditions also appear to be weakening, at least when measured by the headline unemployment rate, which has risen from 4.7% in July 2025 to 5.1% in November, the latest available reading.

What about inflation? It remains the highest among developed markets, currently at 3.4%. However, there is a constructive development: all major CPI components point to a meaningful deceleration over the coming months, with inflation potentially falling to levels as low as 2% by April. Utility prices (water and gas), food costs, housing-related expenses and transportation are all expected to decline between now and April (see the chart below, courtesy of ING).

Against this backdrop, we expect the Bank of England to continue cutting its policy rate going forward—although not at today’s meeting. Market consensus anticipates at least a further 50 bps of easing over the course of the year, with the first move likely as early as March, provided that incoming data confirm the disinflationary trend. In this context, UK CPI releases will become a key data point to monitor.

TECHNICAL ANALYSIS

Following the late-January rally that lifted GBPUSD from 1.3400 to 1.3870 -largely driven by USD weakness- the pair and sterling have come under renewed pressure in recent sessions, giving back approximately -1.61% as of last night’s settlement. Once again, the technical rebound in the US dollar appears to have been a key driver, with the USD Index recovering from its January 27 low of 95.36 to the 97.50 area, where it is trading this morning.

However, as markets are inherently forward-looking and discount future expectations, the macro backdrop facing the Bank of England—as discussed above—likely also plays a role in the recent price action.

From a technical perspective, GBPUSD broke above a descending trendline on January 23, subsequently stalled, and now appears to be undergoing a textbook pullback. The primary target of this move aligns closely with this morning’s low at 1.3810. That said, without claiming precision in identifying exact swing points, we also highlight two nearby areas of interest at 1.3580 and 1.3660, the latter being close to today’s opening level.

We also note—although not visible on this chart—that the 1.4250 area represents a significant long-term resistance and upside target. GBPUSD has already come close to this level following the rally that began in April 2025 from the 1.2150 area (the green line shown at the bottom of the chart represents the trendline originating from that period). Indicators are now turning lower: RSI is trending lower, and the MACD histogram has just crossed below its signal line today.

While other major central banks may also be moving toward a more accommodative stance in the coming months, we believe the Bank of England could act more aggressively. For this reason, we do not rule out that the current move in GBPUSD extends beyond today’s retest of the former downtrend and pushes lower. Key levels to monitor would be the psychological “round number” at 1.35 and, more importantly, the 1.34 area. The expected time horizon for this move is several weeks.