GBPUSD Outlook: Softer UK CPI Revives BOE Rate Cut Expectations
Softer UK CPI has revived expectations of a BOE rate cut, supporting optimism across risk assets. However, a potential BOE rate cut against a Fed rate hold could add further pressure on the pound versus the US dollar.
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Key Events
• UK CPI dropped to one-year lows, easing from 3.4% to 3.0%, lifting rate cut expectations as early as March 2026.
• BOE rate cut optimism is likely to clash with persistent Fed rate hold sentiment, creating a fragile backdrop for GBPUSD near the 1.35 mark.
• The FTSE 100 climbed to a fresh record above 10,600 on renewed rate cut expectations.
The UK economy had been navigating a delicate balance between elevated inflation pressures, softer labor market data, and an uncertain political backdrop. The recent drop in CPI from 3.4% to 3.0% helped ease growth concerns and revived expectations of policy easing as early as March 2026. This shift in sentiment supported the FTSE 100, which pushed to a new record above 10,600
For GBPUSD, key levels remain in focus to determine whether the latest pullback toward the 1.35 mark is sustainable, particularly as the dollar regains traction.
GBPUSD Outlook: Daily Time Frame – Log Scale
Source: Trading View
From a daily perspective, price action is signaling a potential bearish shift following a sequence of consecutive higher lows since November 2024. The pair is currently holding above the 1.35 support level, which remains pivotal.
A sustained break below 1.35 would expose 1.3430 and 1.3330, levels that align with the 0.60 and 0.618 Fibonacci retracements of the November–January advance.
A deeper break below 1.33 would increase the probability of a move toward the 1.30 psychological zone, a scenario that would likely coincide with broader DXY strength.
On the upside, a daily or weekly close back above 1.3730 would reassert bullish momentum, exposing 1.3830 and the 1.40 threshold, continuing the broader breakout beyond the 2007–2024 consolidation range illustrated below.
GBPUSD Outlook: Monthly Time Frame – Log Scale
Source: TradingView
Written by Razan Hilal, CMT
Follow on X: @Rh_waves
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