Pound Tests Key Support as Policy Outlook Diverges

UK inflation has cooled, with CPI falling from 3.4% to 3.0%, which has revived expectations that the Bank of England could start cutting rates as early as March 2026. At the same time, rate cut optimism in the UK is likely to clash with ongoing rate hold sentiment from the Federal Reserve, creating a fragile environment for GBPUSD around the 1.35 area.

GBPUSD is moving in a downtrend channel, reversing from a multi-year high of 1.38700.

Technically, GBPUSD is still holding above the key 1.35 support, but price action is starting to show signs of a possible bearish shift after months of higher lows. A clear break below 1.35 would open downside targets at 1.3430 and 1.3330, with a risk of a break below 1.33.

On the upside, a break above the downtrend channel will weaken the bears. A daily or weekly close back above 1.3730 would restore bullish momentum, exposing 1.3830 and potentially 1.40, continuing the broader long term breakout beyond the multi-year consolidation range.

GBP/USD 4-Hour Chart