On Wednesday, the pound dropped from a four-year peak, influenced by a dovish outlook from the Bank of England (BoE) and ongoing political uncertainties in the UK. This occurred alongside a weaker dollar, which was affected by disappointing labor market data. In its February meeting, the BoE maintained interest rates, but the Monetary Policy Committee (MPC) vote had a narrow 5-4 split. Four members advocated for an immediate 25 basis point cut, which caught markets off guard with a more dovish tone than anticipated.
Governor Andrew Bailey mentioned that inflation is likely to hit the 2% target sooner than expected, while markets are pricing in an additional 50 basis points of easing for 2026. Political risks resurfaced after Scottish Labor leader Anas Sarwar urged Prime Minister Keir Starmer to resign due to the Peter Mandelson scandal; however, the situation has somewhat stabilized with backing from the cabinet. Key upcoming events for the pound include the provisional UK gross domestic product (GDP) data for the fourth quarter of 2025, scheduled for release on Thursday. The consensus is at 0.2% quarter-on-quarter (down from 0.1% in Q3) and 1.2% year-on-year (previously 1.3%). There will also be industrial and manufacturing production figures for December. Recently, the BoE downgraded its GDP forecast for 2026 from 1.2% to 0.9%, adding to the cautious environment. While Pill, an MPC member, is set to speak on Friday, much attention is directed towards the delayed US consumer price index (CPI) for January, with expectations for a year-on-year change of 2.5% and a month-on-month core change of 0.3%. A weaker CPI could trigger more USD selling and support GBP/USD, despite the BoE’s dovish inclination.
GBP/USD price prediction
On the daily chart, GBP/USD fell by 0.12% during the session, trading at 1.3627, pulling back from a late January swing high of 1.3869, and hitting the lowest point since early 2022. The price remains above both the 50-day exponential moving average (EMA) of 1.3516 and the 200-day EMA of 1.3312, indicating a sustained bullish trend. Highs and lows have developed since the November low of 1.3010. The retreat from 1.3869 has been orderly, with support found around the 1.3600 mark over several sessions. The stochastic oscillator (14, 5, 5) reading of 47.10/52.91 sits midline, suggesting neutral momentum after resetting from overbought levels, which might indicate that the correction is nearing its end. Immediate support is located within the range of 1.3585 to 1.3620, closely correlating with recent consolidation lows, and maintaining this level would help sustain a bullish structure to test the highs of 1.3735 and 1.3869. Should those levels falter, deeper support appears at 1.3516 (50EMA) and the 1.3380-1.3400 range. Resistance levels are at 1.3735 and then 1.3869. A daily close below 1.3585 could lead the way down to 1.3380 to 1.3400, while a bullish stochastic crossover rebounding from current readings may push it back towards January highs.
