The Pound Sterling (GBP) has gained 0.34% against the US Dollar (USD), trading at 1.2756 after dipping to 1.2700. The recovery comes amid renewed optimism regarding US-UK trade negotiations, following comments from President Trump about tariffs being leverage for deals.
UK Prime Minister Keir Starmer emphasised the potential for an economic partnership to circumvent a 10% export tariff. Meanwhile, UK GDP data for February is anticipated, with expectations of a 25 basis point interest rate cut by the Bank of England in May.
Market Conditions And Analysis
The market is also awaiting the Federal Reserve’s minutes and inflation data, which could affect USD strength. Technical analysis indicates sideways movement for GBP/USD as market participants monitor economic indicators.
In terms of currency performance this week, the GBP has shown a notable decline against other major currencies, with the most substantial loss against the US Dollar at 0.97%.
Johnson’s remarks about trade leverage appear to have triggered a short-lived rebound in the Pound, which had been under pressure earlier, largely due to shifting expectations around domestic policy and looming central bank decisions. We observed a brief recovery to 1.2756, suggesting that market participants may be pricing in the possibility of progress on bilateral trade terms, however modest that may be in practice. That said, the broader weekly move illustrates some underlying fragility, with weakness persisting across most G10 pairs. Against the Dollar, the Pound is still sitting at a weekly loss of nearly one percent.
From what we’ve tracked, this price activity ties back to projected policy shifts rather than actual macro data. Starmer’s suggestion of exploring loopholes to neutralise tariff impact is politically strategic, but it’s unlikely to dictate near-term direction for Sterling without material follow-up. The upcoming GDP print, although not traditionally market-moving in isolation, could feed into expectations for May’s rate call and spark moves in short-term rates markets—especially if it surprises.
Monetary Policy Expectations
Regarding monetary policy, traders seem to be steering positions based on futures data that indicates heightened probability of a 25 basis point cut from the Bank of England at the next meeting. We’ve seen OIS pricing line up increasingly with forward guidance and recent MPC commentary. Should the data come in weaker-than-anticipated, particularly in consumer spending or business investment, this will likely firm up conviction around a cut and compress Sterling further, especially in EUR/GBP.
From our side, attention remains fixed on what the Fed releases in its minutes. The inflation dataset in the US could run hot and upside surprises would materially shift the Dollar leg higher, pulling GBP/USD further back into negative territory. The currency pair has been in a defined sideways channel, as indicated by Bollinger Band patterns and trendlines across hourly and daily charts. Weaker UK prints paired with firmer US price growth could test the bottom of this range and prompt sharp movement in rates vol. That could catch offside any positioning skewed towards rate differentials narrowing soon.
Beyond the headline rate, focus should be extending to real yields and short-dated gilts, where the options market has priced in rising downside protection over the last week. This suggests a hedging bias, possibly reflecting nervousness ahead of both macro data and political developments. Implied vol has crept up slightly, but what’s more instructive is that risk reversals are leaning more defensively, showing that demand remains for downside cover in the Pound.
Week-on-week, GBP’s underperformance across the currency board suggests that bullish bets were a touch ahead of fundamentals. For positions sensitive to terminal rate expectations, it will be key to examine the shape of the yield curve in the UK over the next fortnight. Steepening at the short end, if paired with soft growth signals, will challenge GBP longs at least into the BoE’s next policy window. We see limited impetus for a sustained rally barring a shift in global sentiment or surprise reacceleration in domestic data.
Those focusing on derived exposure may find asymmetry building in GBP crosses, with synthetic structures on the downside beginning to offer better value compared to linear shorting. Spot levels alone aren’t offering directional signals, but near-dated vol structures might be ripe for strategic calendar spreads if data surprises are your base case. Modelling that against inflation-linked bond behaviour and breakeven rates could narrow structural mispricings in medium-dated options.
As it stands, firm narrative drivers lie with divergence in policy and political positioning. The number of moving levers in the coming weeks is elevated—data, rate bets, commodities—all feeding into current valuations. We continue to track real rate differentials and forward-looking sentiment shifts. Watch for any sudden adjustments in fixed income positioning that rolls into forex via rate differentials, especially with cross-asset implications on commodities and equities currently amplifying sensitivity to macro prints.
