GBP/USD Price Forecast - Pound Holds 1.35 as BoE Cut Pricing Meets Tariff-Driven Dollar Volatility

GBP/USD Price Focus: Rate-Cut Premium Versus Tariff-Driven Dollar Weakness

GBP/USD – Trading Around 1.35 With Both Sides Damaged

GBP/USD is oscillating around the 1.35 handle after a sharp retreat from the year-to-date high near 1.3865. The pair briefly slipped below 1.3450 to four-week lows before stabilising as US dollar strength faded and UK data turned less one-sided. The spot rate is now boxed between resistance around 1.3580–1.3600 and support near 1.3445–1.3400, reflecting two weak macro stories colliding rather than a clear winner on either side of the cross.

UK Macro: Softer CPI At 3.0% And Jobs Data Push BoE Toward Cuts

The UK backdrop behind GBP/USD is unambiguously dovish. January headline CPI fell from 3.4% to 3.0%, moving closer to the 2.0% BoE target and extending the disinflation trend. At the same time, the unemployment rate climbed to around 5.2%, the highest in roughly five years, signalling slack building in the labour market rather than overheating. Wage growth cooled as well, with average pay growth easing to about 4.2% from 4.4% in the prior three-month period, chipping away at real-income support. Put together, this combination of weaker jobs, slower wage growth and softer inflation gives the BoE clear room to ease.

Markets are now leaning toward at least 2 x 25 bps cuts, with one move as early as the March meeting and another likely around July if the data path does not improve. The policy narrative has shifted from “how long can rates stay restrictive” to “how fast does the BoE need to move to avoid a more serious downturn”. That repricing is exactly what knocked GBP/USD off the 1.38–1.39 area and underneath the 1.35 pivot in recent sessions.

Sterling Sentiment: Long-Term Banks Still See 1.36–1.40, But Near-Term Premium Is Eroding

Despite the near-term pressure, some institutional projections still see limited upside over a 12-month horizon. One major house looks for GBP/USD around 1.36 by the end of 2026, another places a 12-month target closer to 1.40. Those calls implicitly assume that US growth converges down toward the UK, that the Fed eventually eases more than is priced today, and that UK political risk stays contained.

Shorter term, the story is different. The labour-market “cracks” and falling inflation reinforce the idea that BoE cuts will arrive before the Fed moves decisively. That compresses UK-US rate differentials in favour of the dollar and makes it harder for GBP/USD to sustain rallies above the mid-1.35s until the BoE has delivered more of that easing cycle and the macro fog clears.

US Side Of GBP/USD – Weak 1.4% GDP, Sticky 3.0% Core PCE And Tariff Volatility

On the dollar side of GBP/USD, macro strength is no longer a one-way argument. US GDP slowed to about 1.4% annualised in Q4 2025 from roughly 3.3% in Q3, a clear loss of momentum. At the same time, the Fed’s preferred inflation gauge, core PCE, is still running around 3.0% year-on-year, leaving price pressures well above the 2.0% goal. That mix – slower growth with still-elevated inflation – keeps the Fed trapped between the need to protect demand and the need to avoid re-accelerating prices, and it injects noise into the dollar path.

The trade policy background adds another layer. The Supreme Court struck down the previous global tariff architecture as an overreach, briefly removing one pillar of tariff-driven inflation risk and giving risk assets a lift. Within hours, a new blanket 15% global tariff regime was announced under a different legal basis for 150 days, re-introducing uncertainty. Markets are now forced to price not just the real economic effect of higher import costs but also the legal and political instability around US trade strategy. That uncertainty has knocked the US Dollar Index down toward the 97.5 area, but the greenback still benefits from occasional safe-haven demand when risk sentiment sours.

Tariff Shock, US-Iran Risk And Oil Create A Two-Way Dollar In GBP/USD

For GBP/USD, the tariff and geopolitical mix is not one-directional. On one side, global tariffs and the threat of broader trade conflict are growth-negative, particularly for open economies like the UK and the euro area, which can cap sterling. On the other, tariff chaos and talk of limited airstrikes on Iran push investors toward defensive positioning, which historically supports the dollar on a risk-off basis.

Energy is the bridge between these themes. Concerns that US-Iran tensions could escalate, with possible attempts to disrupt flows through the Strait of Hormuz, have revived talk of $90–$100 oil. Major banks have started to lift their crude forecasts, with one raising its Q4 2026 Brent projection from $56 to $60 and WTI from $52 to $56, while still flagging a possible surplus of around 2.3 million bpd in 2026 if no major disruption materialises. At the screen level, WTI is trading near $67 and Brent around $72, up roughly 0.8–0.9% on the day. In the short run, dearer energy tends to support the dollar via its impact on US inflation expectations and Fed policy, while it is a tax on UK real incomes, reinforcing the downside bias for GBP/USD if crude spikes.

Dollar Index And GBP/USD Technicals – Trendline Pressure And Moving Average Signals

From a technical angle, GBP/USD is still digesting a reversal from overbought levels. The pair has rolled over from 1.3865 and now trades near 1.3520–1.3530, sitting under a descending trendline drawn from late-January highs. On the daily chart, price has slipped below the 50-day moving average near 1.3530 and is threatening the 200-day moving average around 1.3445. That configuration – price under both medium-term averages – confirms a corrective phase rather than a healthy uptrend.

Momentum confirms the pressure. Both RSI and MACD have turned lower from previously elevated levels, reflecting a loss of upside energy and growing downside bias. Scotiabank flagged risk toward the mid-1.33s if GBP/USD decisively breaks the 1.3445 area. Short-term resistance sits around 1.3530–1.3580, aligned with the descending trendline and clustered moving averages; a sustained daily close above that band would be needed to argue for a durable bullish turn.

On the US side, the Dollar Index near 97.4 is trading below important resistance around 98.0–98.1 and hovers around key Fibonacci support near 97.2, with additional backing at 96.8 and 96.3. The flat 50-period moving average below a still-elevated 200-period keeps the broader picture mixed but leans away from a strong USD regime. This structure limits the extent of sterling losses but does not rescue GBP/USD while BoE easing is being priced more aggressively than Fed cuts.

Short-Term GBP/USD Levels – 1.3580 Cap, 1.3350 Target On Break Lower

The near-term trading map on GBP/USD is well-defined. On the topside, 1.3580 is the key barrier: it coincides with the short-term descending trendline, the 50-period moving average on intraday charts and the top of the recent rebound range. Above that, 1.3650 comes into play as the next objective, followed by the January high area around 1.3865 if momentum shifts sharply.

On the downside, initial support sits around 1.3485, followed by the 1.3445 zone tied to the 200-day moving average and recent lows. Below that, the next significant level is 1.3350, corresponding to the January 19 low and the downside objective highlighted in several tactical setups. The current configuration – price stuck under 1.3580 and only marginally above 1.3485–1.3445 – leaves the pair vulnerable to a push toward 1.3350 if UK data continue to disappoint or if BoE communication leans even more dovish.

BoE Versus Fed – Relative Policy Path Keeps GBP/USD Under Pressure

Rate expectations are the core driver of where GBP/USD trades over the next few weeks. UK markets are now discounting a clear easing cycle, with at least 50 bps of cuts in 2026 increasingly treated as a floor rather than a ceiling. The narrative is built on 3.0% CPI, a 5.2% unemployment rate and slowing wage growth. Comments from UK-focused research desks stress that the risk skew lies toward more BoE easing than is currently priced if domestic data continue to soften, particularly around employment and consumption.

By contrast, US rate expectations have softened but remain more balanced. The combination of 1.4% GDP growth and 3.0% core PCE argues for some policy adjustment, but the Fed has more room to be patient given still-resilient nominal growth and the dollar’s reserve-currency status. Strategists at large US banks talk about a gradual downside risk for the dollar as growth cools and Fed policy becomes less USD-supportive, but they also highlight that sticky inflation could cap the extent of cuts.

This asymmetry – a BoE that is closer to cutting decisively and a Fed that can afford to wait – keeps the rate-differential narrative tilted against sterling in the short run and supports a mildly bearish stance on GBP/USD rallies until the BoE has delivered more of its easing cycle.

Political And Tariff Risk – Supreme Court Shock, 15% Tariff And UK Sensitivity

Political risk is now embedded in the GBP/USD profile through the tariff and legal channel. The US Supreme Court’s move to strike down the prior tariff regime as illegal was initially USD-negative, as it hinted at constraints on executive power to weaponise trade law. However, the swift rollout of a new 15% global tariff framework under a different authority showed that policy risk has not vanished. A 150-day levy on imports injects a fresh source of uncertainty into global supply chains, inflation expectations and corporate margins.

For the UK, this matters on two fronts. First, as a highly open economy with deep exposure to global trade and financial flows, higher tariffs and wobblier global demand can weigh on growth, reinforcing BoE easing pressure and undermining sterling over time. Second, policy turbulence in Washington supports episodic flows into the dollar as a defensive asset, especially if equity markets wobble or risk volatility spikes. That combination adds another headwind for GBP/USD at a time when the pair is already wrestling with domestic rate-cut repricing.

GBP/USD Verdict – Short-Term Bearish Bias, Tactical Sell With 1.3350 In Sight

Putting the pieces together – weaker UK labour and inflation data, BoE cuts looming, US growth slowing but still accompanied by 3.0% core PCE, tariff chaos, US-Iran tension, firmer oil, and a technical picture capped below 1.3580 – the balance for GBP/USD leans negative in the near term. The pair is trading below its 50-day moving average, flirting with the 200-day, and momentum indicators have rolled over from recent highs, all consistent with a corrective phase that has room to extend.

The tactical stance here is bearish, with GBP/USD treated as a Sell, not a Buy, while it remains under the 1.3580–1.3600 band. The downside window toward 1.3350 stays open as long as the pair cannot reclaim and hold above that resistance zone. Short exposures are best defined with risk marked above 1.3600, acknowledging that a sustained break of that level would signal that rate-cut expectations have become fully priced and that the dollar side of the pair is deteriorating faster than anticipated. Until that happens, the burden of proof sits with sterling, and rallies look more like opportunities to fade than the start of a durable bull leg in GBP/USD.

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