The pound fluctuated slightly against the dollar as rising political uncertainty in the UK coupled with expectations of interest rate cuts.
2026-02-10 14:31:54
The British pound edged lower against the US dollar (GBP/USD) during Tuesday's European trading session, with trading around 1.3660. Market sentiment was influenced by both the UK political situation and the outlook for monetary policy, significantly increasing the short-term pressure on the pound.
On the political front, the stability of the British Prime Minister's rule is being challenged. The Scottish Labour Party leader has publicly called for his resignation, and the controversy has put pressure on the government.
Despite Starmer's clear statement that he would not easily relinquish his mandate to govern and his emphasis on the importance of maintaining national stability, rising political uncertainty has impacted market confidence, and investors are taking a cautious approach to the pound.
Regarding monetary policy, expectations for a Bank of England interest rate cut are rapidly rising. The latest inflation forecasts indicate that UK inflation could fall below the 2% target as early as April, creating conditions for a policy shift.
Market expectations that the Bank of England will cut interest rates as early as March have continued to strengthen. Changes in the interest rate outlook have weakened the pound's interest rate advantage and become an important driver of the currency's decline.
Institutional views also reinforce this expectation. BNP Paribas points out that the Bank of England may implement its next interest rate cut in March, followed by a longer policy observation period, and expects the policy rate to gradually decrease to around 3.00% by mid-2027.
Such assessments have reinforced market consensus that a new easing cycle in British monetary policy is imminent. Regarding the US dollar, investors are currently maintaining a wait-and-see approach. The US December retail sales data is about to be released, while the delayed January jobs report has become the focus of market attention.
The market currently expects moderate growth in non-farm payrolls and a stable unemployment rate. If the US labor market shows further signs of slowing, it could limit the dollar's upside potential, thus mitigating downward pressure on the pound to some extent.
From a technical perspective, the GBP/USD pair is showing signs of a short-term pullback from its highs. After previously surging, the exchange rate failed to hold above key resistance levels and has instead entered a period of consolidation and correction. Currently, the price is trading below short-term moving averages, indicating weakening short-term momentum.
In terms of momentum indicators, short-term oscillators have retreated from their highs but have not yet entered the extreme oversold zone, suggesting that there is still potential for further downside. If the exchange rate continues to be under pressure, the 1.3650 level will become a crucial short-term support area; a decisive break below this level could trigger a deeper technical pullback.
On the upside, if the exchange rate rebounds to the upper edge of the previous consolidation range but fails to break through, it may actually strengthen the resistance level of that area. Overall, in the absence of clear bullish factors, the technical structure is more inclined towards a weak and range-bound trend.
Editor's Note:
The pound is currently facing a combination of pressures: primarily internal concerns and neutral external factors. Political uncertainty in the UK, coupled with expectations of a Bank of England interest rate cut, is weakening the pound's fundamental support.
In contrast, while the US dollar lacks strong upward momentum, the GBP/USD pair is struggling to escape its downward trend given the weakening of the British pound. In the short term, unless US data shows significant weakness, the pound's upside potential may remain limited; attention should be paid to whether key support levels hold.
On the political front, the stability of the British Prime Minister's rule is being challenged. The Scottish Labour Party leader has publicly called for his resignation, and the controversy has put pressure on the government.
Despite Starmer's clear statement that he would not easily relinquish his mandate to govern and his emphasis on the importance of maintaining national stability, rising political uncertainty has impacted market confidence, and investors are taking a cautious approach to the pound.
Regarding monetary policy, expectations for a Bank of England interest rate cut are rapidly rising. The latest inflation forecasts indicate that UK inflation could fall below the 2% target as early as April, creating conditions for a policy shift.
Market expectations that the Bank of England will cut interest rates as early as March have continued to strengthen. Changes in the interest rate outlook have weakened the pound's interest rate advantage and become an important driver of the currency's decline.
Institutional views also reinforce this expectation. BNP Paribas points out that the Bank of England may implement its next interest rate cut in March, followed by a longer policy observation period, and expects the policy rate to gradually decrease to around 3.00% by mid-2027.
Such assessments have reinforced market consensus that a new easing cycle in British monetary policy is imminent. Regarding the US dollar, investors are currently maintaining a wait-and-see approach. The US December retail sales data is about to be released, while the delayed January jobs report has become the focus of market attention.
The market currently expects moderate growth in non-farm payrolls and a stable unemployment rate. If the US labor market shows further signs of slowing, it could limit the dollar's upside potential, thus mitigating downward pressure on the pound to some extent.
From a technical perspective, the GBP/USD pair is showing signs of a short-term pullback from its highs. After previously surging, the exchange rate failed to hold above key resistance levels and has instead entered a period of consolidation and correction. Currently, the price is trading below short-term moving averages, indicating weakening short-term momentum.
In terms of momentum indicators, short-term oscillators have retreated from their highs but have not yet entered the extreme oversold zone, suggesting that there is still potential for further downside. If the exchange rate continues to be under pressure, the 1.3650 level will become a crucial short-term support area; a decisive break below this level could trigger a deeper technical pullback.
On the upside, if the exchange rate rebounds to the upper edge of the previous consolidation range but fails to break through, it may actually strengthen the resistance level of that area. Overall, in the absence of clear bullish factors, the technical structure is more inclined towards a weak and range-bound trend.
Editor's Note:
The pound is currently facing a combination of pressures: primarily internal concerns and neutral external factors. Political uncertainty in the UK, coupled with expectations of a Bank of England interest rate cut, is weakening the pound's fundamental support.
In contrast, while the US dollar lacks strong upward momentum, the GBP/USD pair is struggling to escape its downward trend given the weakening of the British pound. In the short term, unless US data shows significant weakness, the pound's upside potential may remain limited; attention should be paid to whether key support levels hold.
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