GBP/USD fell on Tuesday and traded near 1.3490 at the time of writing. It was down 0.33% on the day as traders reduced positions ahead of Federal Reserve and Bank of England decisions this week.
Sterling faced selling pressure as uncertainty remained over the Bank of England outlook. The Bank is widely expected to keep its key rate at 3.75%, with recent UK core inflation showing signs of easing.
Bank Of England Outlook
Policy makers are still expected to point to upside inflation risks linked to ongoing tension in global energy markets. Bank of England Governor Andrew Bailey said at an IMF event there was no urgency to change policy, citing uncertainty over the outlook and how energy shocks pass into the UK economy.
The US Dollar was supported, with the Dollar Index (DXY) edging higher ahead of the Fed decision. The Fed is expected to keep rates unchanged in the 3.5%–3.75% range for a fourth straight meeting.
Markets also tracked Middle East tensions and energy supply disruption, which supported the Dollar. Volatility may rise before the announcements as traders watch guidance on the future path of rates.
With GBP/USD trading near 1.2450, we see traders reducing risk ahead of major central bank meetings. This situation feels very familiar, reminding us of the uncertainty we navigated back in 2025 before similar announcements. The current caution is creating downward pressure on the pair.
Trading Strategy Considerations
We expect the Bank of England to hold its rate at 3.0%, even as the UK economy shows little growth. March 2026 inflation data came in at a stubborn 2.8%, well above the 2% target, which prevents the bank from offering any relief. This mirrors the policy paralysis we observed last year when officials were worried about energy shocks.
On the other side of the Atlantic, the Federal Reserve is facing a different problem, as US inflation has ticked back up to 3.1%. While the Fed is expected to hold its rate at 3.25%, the market is now pricing in a higher chance of a rate hike by summer. Any firm language from the Fed chair will likely strengthen the US dollar significantly.
Ongoing geopolitical tensions continue to disrupt energy supply chains, which weighs on global risk sentiment. This environment boosts the US dollar’s appeal as a safe-haven asset, adding further pressure on currencies like the pound. We have seen this pattern play out repeatedly over the last 18 months.
In the coming weeks, we should consider strategies that benefit from a stronger dollar and a weaker pound. Buying put options on GBP/USD could offer a good way to position for a potential drop while capping our risk ahead of the central bank news. Selling GBP/USD futures is another direct way to express this bearish view, but it requires careful management given the expected volatility.
