After the GBP/USD pair reached a level of 1.3869 on Tuesday, January 27, 2026, the highest level since September 14, 2021, the pair retreated to 1.3496 yesterday. Nevertheless, the pair remained up by around 1% since the beginning of the year and is currently trading near the 1.3550 level.
Recently released UK economic data have been weak. The unemployment rate rose to 5.2%, higher than the previous reading of 5.1% and marking the highest level in five years. In addition, wage growth, including bonuses, slowed to 4.2%, below both expectations and the previous reading of 4.6%. Industrial production also declined monthly, contracting by 0.9%, which was weaker than expectations (-0.1%) and the prior reading (1.3%). As for GDP, the UK economy recorded marginal growth of 0.1% in the fourth quarter of last year, below expectations of 0.2% but in line with the previous reading.
On the inflation level, headline CPI rose on a yearly basis by 3.0%, in line with expectations but below the previous reading (3.4%) and remaining well above the 2% target. This highlights persistent inflationary risks alongside a weakening labor market, increasing the likelihood of a stagflationary environment in the UK economy.
The Bank of England decided at its February 5 meeting to keep interest rates unchanged at 3.75%, as widely expected. However, the notable development was that four out of nine committee members voted in favor of a rate cut, compared with market expectations that only two members would support such a move. Meanwhile, five members voted to keep rates unchanged, versus expectations that seven would favor holding rates steady.
Based on these developments, expectations are growing that the Bank of England may move toward cutting interest rates in the coming period, a scenario that would likely weigh negatively on the British pound.
In addition, UK government bond yields declined sharply across all maturities yesterday, encouraging investor demand for British bonds. The two-year gilt yield, which is most sensitive to monetary policy expectations, fell to 3.56%, its lowest level since August 15, 2024.
Furthermore, the modest rebound in the US dollar against most major currencies has contributed to reinforcing the downside momentum in the GBP/USD pair.
From a technical perspective, a break below the pivot level at 1.3568 could open the door toward support levels at 1.3497, 1.3424, and 1.3353. On the upside, a move above the pivot level could see the pair target resistance levels at 1.3641, 1.3712, and 1.3785.
The Relative Strength Index currently stands near 48, indicating moderately negative momentum for the pair. Meanwhile, the MACD shows a bearish crossover between the MACD line and the signal line, reinforcing the likelihood of continued downside momentum in GBP/USD.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
