Pound Sterling remains stronger despite BoE rate cut bets

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GBP/USD remains in the positive territory for the fifth consecutive day, trading around 1.3560 during the early European hours on Thursday. The pair holds ground as the US Dollar (USD) struggles amid ongoing uncertainty over the White House’s economic policies.

GBP/USD gains as the US Dollar loses ground amid US economic policy uncertainty.
President Trump imposed new 10% tariffs despite a Supreme Court block on part of his duties.
Traders expect a March BoE rate cut amid weakening UK labor market and cooling inflation pressures.

US President Donald Trump said in his State of the Union (SOTU) address on Tuesday that the US economy is rebounding, defended tariffs as growth-supportive and criticized the Supreme Court for striking down part of his tariff policy.

However, the upside of the GBP/USD pair could be restrained as the Pound Sterling (GBP) may face challenges amid dovish sentiment surrounding the Bank of England’s (BoE) policy outlook. Traders expect the BoE to cut interest rates in March amid weakening United Kingdom (UK) job market conditions and cooling inflationary pressures.

BoE Monetary Policy Committee (MPC) member Alan Taylor advocated for two to three interest rate cuts in the near term, citing downside employment risks and easing price pressures.

UK’s softer inflation data reinforced the likelihood of a BoE rate cut in March. UK Consumer Price Index (CPI) inflation fell to 3.0% in January from 3.4% in December, a sharper decline than expected and the lowest reading since mid-2025.

BoE Governor Andrew Bailey told Parliament’s Treasury Committee that a March rate cut remains “a genuinely open question,” noting services inflation stood at 4.4% in January, above the BoE’s 4.1% projection. Chief Economist Huw Pill also urged caution, warning against being “beguiled” by headline inflation easing toward the 2% target.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.