GBP/USD holds losses below 1.3500 due to BoE rate cut bets

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GBP/USD falls as the US Dollar rebounds after two consecutive sessions of losses.
The US Dollar weakens as foreign investors avoid US assets amid rising trade uncertainty.
The Pound Sterling weakens as markets expect the Bank of England to begin rate cuts as early as March.

GBP/USD edges lower after two days of gains, trading around 1.3480 during the Asian hours on Tuesday. The pair declines as the US Dollar (USD) rebounds from losses recorded over the previous two sessions. Traders will focus on the US ADP Employment Change four-week average later in the day, along with speeches from Federal Reserve officials.

However, the GBP/USD pair could recover if the US Dollar faces renewed pressure, as foreign investors shy away from US assets amid escalating trade uncertainty. According to The Wall Street Journal, US President Donald Trump’s administration is considering fresh national security tariffs on multiple industries after a Supreme Court ruling invalidated several of his second-term levies. The proposed measures would be implemented under Section 232 of the Trade Expansion Act of 1962 and remain separate from the 15% global tariff announced on Saturday.

On monetary policy, Christopher Waller said his decision on supporting a rate cut at the March Federal Open Market Committee (FOMC) meeting will depend on February labor market data. Swaps markets currently assign just a 5% probability to a 25-basis-point cut in March, while pricing in around 50 bps of easing in 2026.

Meanwhile, the Pound Sterling (GBP) remains under pressure amid rising expectations that the Bank of England (BoE) could begin cutting rates as early as March, reflecting softer labor market conditions and easing inflation.

Dovish signals were reinforced by BoE Monetary Policy Committee member Alan Taylor, who voiced concerns about the UK’s growth outlook, expressed confidence that inflation will return to the 2% target, and supported further near-term rate cuts.

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.