GBP/USD fell for a third day and traded near 1.3520 in Asian hours on Friday. The Pound weakened as markets reduced expectations of a Bank of England rate rise, alongside hopes that Middle East tensions may be easing.
BoE Governor Andrew Bailey said the Bank is “not going to rush to judgments” on rate increases. He said higher oil and gas prices will feed into inflation, but rate decisions are “very, very difficult”.
On Thursday, GBP/USD dropped about 0.25% to close near 1.3525 after moving back below 1.3550. It pulled back from a Wednesday rise towards 1.3600.
UK data were mixed: GDP rose 0.5% month on month in February versus 0.1% expected, and the Index of Services rose 0.5% versus 0.3% expected. Manufacturing Production fell 0.1% month on month and fell 0.5% year on year, while Industrial Production year on year was -0.4% versus -0.9% expected.
The pair also slipped 0.17% as US data outperformed, trading near 1.3534 after a two-month high of 1.3594. US Initial Jobless Claims fell from 218K to 207K versus 215K expected, while US Industrial Production dropped from 0.7% to -0.5% month on month in March.
We are seeing a familiar pattern in GBP/USD that echoes the dynamics of early 2025. The pair is once again under pressure as expectations for a Bank of England rate hike diminish. This creates an environment where selling rallies in the pound may prove to be a sound strategy.
This view is supported by the latest UK inflation data for March 2026, which showed the headline CPI rate falling to 2.8%, down from 3.2% the previous month. This cooling inflation gives the BoE cover to remain on hold, much like Governor Bailey’s cautious comments did back in 2025 when the market was also second-guessing a rate increase. We see that Overnight Index Swaps are now pricing in less than a 20% chance of a BoE hike by August.
Just as we observed weak manufacturing figures in 2025, the latest S&P Global/CIPS UK Manufacturing PMI for March 2026 printed at a contractionary 48.9. This persistent softness in the UK’s industrial sector is offsetting any strength in services, leaving the pound without a clear economic catalyst. This recurring theme suggests a structural headwind for Sterling.
On the other side of the pair, the US economy is showing relative strength, creating a policy divergence. The most recent US Non-Farm Payrolls report for March 2026 showed a robust addition of 250,000 jobs, handily beating expectations. This mirrors the strong US jobs data from April 2025 that bolstered the dollar against the pound.
Given this setup, derivative traders should consider positions that benefit from further GBP/USD downside or range-bound action. Buying GBP/USD put options with expiries in the coming one to three months offers a direct way to profit from a decline while capping risk. Specifically, a bearish put spread could be used to reduce the upfront premium cost.
The mixed economic signals, with weakness in UK manufacturing and strength in US labor, suggest volatility may be underpriced. Looking back at the spike toward 1.3600 in 2025 and its subsequent failure, it shows that sharp but temporary moves are possible. Traders could therefore look at buying volatility through instruments like straddles, anticipating a significant price move without needing to be certain of the direction.
