The GBP/USD exchange rate declined to 1.3627 on Thursday. Market participants are closely monitoring the results of today’s Bank of England meeting. The expectation is for a decline in UK interest rates over the course of the year. Nonetheless, the regulator is expected to refrain from offering definitive indications regarding the timing and extent of easing, as it must await a more transparent understanding of inflation. The US dollar faces additional pressure as the release of crucial US labor market data is postponed because of the partial government shutdown. This heightens ambiguity regarding the Fed’s forthcoming policy decisions.
As we approach the year’s end, global markets are anticipating approximately 35 basis points of easing from the Bank of England, which includes one 25 basis point cut and a second cut that carries a probability of about 40%. Political risks continue to persist in the UK. Investor focus is directed towards the upcoming by-elections in Gorton and Denton County on 26 February, in conjunction with the May local elections. Recent polling indicates an increase in backing for the Reform UK party. The current standing is favorable compared to both Prime Minister Keir Starmer’s Labour Party and Kemi Badenoch’s Conservatives, even though the general election is not set to occur until 2029.
On the H4 chart, following a significant rally in the latter part of January and reaching a new peak in the 1.3850–1.3880 range, GBP/USD has begun a correction phase. The price has declined from the upper boundary of the Bollinger Bands and is currently examining the support zone between 1.3620 and 1.3650. The upward momentum has diminished, resulting in a short-term outlook that is neutral to bearish. Concurrently, the overarching upward trend remains intact. A descending corrective channel has developed on the lower H1 chart. The price continues to establish lower lows and is situated close to the lower Bollinger Bands. Selling pressure remains evident, with immediate support located between 1.3520 and 1.3550. For stabilization, the market must achieve a return exceeding the 1.3660–1.3700 range.
In conclusion, GBP/USD is undergoing a strategic retracement influenced by pre-BoE apprehension and postponed US data, resulting in a short-term dollar compression. The technical correction seems to be proceeding in an orderly manner and is currently testing significant support within a broader bullish framework. The near-term direction is heavily dependent on the Bank of England’s communication today: any dovish signals may lead to a correction towards 1.3520, whereas a neutral or hawkish stance could initiate a recovery effort. Political uncertainty in the UK introduces a medium-term risk factor; however, the current emphasis is on monetary policy signals and maintaining the integrity of the 1.3620 support zone.