The GBP/USD pair has been weighed down by a mix of stubborn UK inflation and a cautious Bank of England, slipping back toward the 1.3450 handle. While the pound struggles to find footing, the U.S. dollar continues to enjoy steady support from firm yields and a slightly higher policy rate, tilting the balance in favor of the greenback. The pair now faces a critical test as price consolidates below a fresh 4H Fair Value Gap, with traders watching whether sterling can stage a recovery or if downside momentum will deepen.
UK inflation concerns and the BoE’s dilemma
Inflation in the UK remains elevated at around 3.8%, nearly twice the BoE’s 2% target. This stickiness has forced policymakers into a delicate balancing act. At its most recent meeting, the BoE opted to hold interest rates at 4.00%, signaling caution about cutting too quickly while acknowledging risks of stalling growth.
Governor Andrew Bailey and other MPC members have stressed that inflation risks remain tilted upward. This leaves the BoE trapped: further hikes could damage already fragile economic activity, but cuts risk fueling another wave of price increases. For sterling, this policy paralysis translates into a lack of conviction — keeping the currency under pressure as investors look for clearer signals.
The Dollar’s edge
In contrast, the Federal Reserve also slowed its pace of adjustment but still holds rates at 4.25%, a notch above the BoE. Chair Jerome Powell emphasized that inflation risks remain, meaning aggressive easing is unlikely. With U.S. 10-year yields holding above 4%, the dollar remains attractive compared with sterling, particularly in an environment where the UK’s inflation-growth tradeoff is creating uncertainty.
This modest yield advantage, coupled with stronger U.S. macro resilience, has kept the dollar supported against the pound — limiting sterling’s attempts to recover.
Technical outlook – GBP/USD
GBP/USD is trading around 1.3454, sitting just below a recently formed H4 Fair Value Gap (1.34575–1.34732). The pair has been under heavy selling pressure, breaking lower from recent highs and now consolidating at a vulnerable area.
Bullish scenario – Short-term relief
If GBP/USD can reclaim and hold above the 1.34575–1.34732 FVG, it could trigger a short-term relief bounce. Buyers may attempt to push toward the 1.3520–1.3550 zone as the next upside objective. A sustained move above 1.3473 would mark the first sign of regained momentum for sterling.
Immediate target: 1.3500 (psychological level)Secondary target: 1.3550 (recent swing resistance)Extended target: 1.3600 (higher structure / liquidity pool)Bearish scenario – Downtrend continuation
Failure to clear the 1.34575–1.34732 FVG would likely reinforce bearish momentum. In this case, sellers may drive price back down toward 1.3400, the next key support and liquidity target. A breakdown below 1.3400 would open the door to a deeper slide, potentially testing the 1.3300 handle in the coming sessions.
Immediate target: 1.3400 (major support and liquidity pool)Secondary target: 1.3350 (intermediate downside level)Extended target: 1.3300 (psychological handle and next major objective)Final thoughts
GBP/USD reflects the UK’s difficult position: inflation is too high to justify easing, yet growth is too weak to risk fresh tightening. The BoE’s pause at 4.00% underscores this dilemma, while the Fed’s slightly higher rate of 4.25% and firm U.S. yields tilt the balance toward the dollar. Unless sterling can reclaim the 1.34575–1.34732 zone, pressure remains on the downside, with 1.3400 and 1.3300 the next key targets.