GBP/USD Under Pressure: Political Turmoil and BoE Rate Cut Fears Weigh on Sterling
The GBP/USD currency pair is under pressure, staying close to 1.3685 during the European session. Even though the hourly charts...
Quick overview
- The GBP/USD currency pair is under pressure, hovering around 1.3685 due to political uncertainty in the UK and expectations of a potential Bank of England rate cut.
- Prime Minister Keir Starmer faces a leadership challenge, increasing political instability and unsettling investors.
- The US Dollar remains strong ahead of key economic data, benefiting from its safe-haven status amid global market volatility.
- Technically, GBP/USD is consolidating with key support at $1.3650, and buyers need to push above $1.3699 to regain momentum.
The GBP/USD currency pair is under pressure, staying close to 1.3685 during the European session. Even though the hourly charts show a generally bullish trend, the British Pound is dealing with several domestic challenges, from a leadership crisis in Downing Street to changing expectations for monetary policy.
UK Political Turmoil: Starmer Faces Leadership Challenge
The main reason for the Pound’s recent weakness is a sharp rise in political uncertainty in the UK. Prime Minister Keir Starmer is facing a major leadership challenge after the fallout from the Jeffrey Epstein scandal.
- Internal Friction: Scottish Labour leader Anas Sarwar publicly called for Starmer to resign on February 9, 2026, saying there is a need for “competent government” and “transparency.”
- Market Impact: Although Starmer has refused to step down and points to his electoral mandate, the split within the Labour party has unsettled investors.
- Volatility: Political instability usually leads to a “risk premium” for the Pound, as traders worry about policy gridlock or sudden changes in government direction.
BoE Rate Cut Expectations Intensify
Another challenge for the Pound is the increasing belief that the Bank of England (BoE) could start cutting rates sooner than expected. The BoE recently kept rates at 3.75%, but the close 5-4 vote showed the Monetary Policy Committee (MPC) is divided.
“We continue to expect the next rate cut in March. After that, we think the BoE will deliver a prolonged pause before resuming policy normalisation in early 2027.” — Dani Stoilova, BNP Paribas Markets 360 Economist.
Inflation forecasts now suggest it could fall below the 2% target as soon as April, so markets see a strong chance of a 25 basis point rate cut in March. Lower rates usually make a currency less attractive, which is putting pressure on Sterling.
US Dollar Holds Firm Ahead of NFP Data
While the Pound is under pressure, the US Dollar (USD) remains strong. Investors are adjusting their positions ahead of a busy week for US economic data.
- US Retail Sales: December US retail sales data, released on Tuesday, is being watched closely for signs that consumers are still spending.
- Delayed NFP Report: Because of a recent government shutdown, the January Nonfarm Payrolls (NFP) report will come out this Wednesday, February 11. Markets expect an increase of 70,000 jobs and an unemployment rate holding at 4.4%.
- Safe-Haven Demand: With global stock markets volatile and political uncertainty in the UK, the US Dollar continues to benefit from its reputation as a top safe-haven asset.
GBP/USD Technical Analysis: Buyers Defend $1.3650 Support
From a technical perspective, GBP/USD is consolidating. The pair has pulled back from the $1.3700 to $1.3720 resistance area but is still trading within an upward channel.
- Key Support: The $1.3650 level is an important support, backed by the 50-hour and 100-hour moving averages.
- Resistance: To regain momentum, buyers need to push the price above $1.3699 and $1.3735.
- Outlook: As long as the price stays above $1.3620, the overall bullish trend is still in place, even though momentum has slowed.
Trading Idea: If you are looking to enter a trade, consider a long position near $1.3650 with a stop just below $1.3620. This setup offers a good risk-reward ratio, aiming for a move back toward $1.3735.
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