GBP/USD Analysis: The Pound Sells Off After the BoE Decision
In a significant market movement, GBP/USD has experienced a decline of over 1.2% within just two trading sessions, indicating a bearish sentiment as the week draws to a close. This selling pressure was notably exacerbated following the Bank of England's (BoE) recent policy decision.
BoE Decision Overview
On the day of the decision, the BoE opted to maintain interest rates at 3.75%. However, this announcement did little to bolster confidence in the pound. The accompanying statement suggested that current inflation trends could allow for further rate cuts, contingent on economic conditions. The BoE's outlook does not foresee any aggressive rate hikes in the near future, which has contributed to the pound's weakness.
Inflation Context
Recent inflation data from the UK shows an annual rate of 3.4% in December 2025, a slight increase from 3.2% in November, yet still below the mid-2025 level of 3.8%. The BoE does not consider this deviation from the 2% target severe enough to warrant additional rate hikes, further diminishing the appeal of sterling-denominated assets.
Impact of the U.S. Dollar
In addition to the BoE's decision, the strengthening of the U.S. dollar has played a crucial role in the pound's recent decline. The DXY index is on an upward trajectory, nearing the 98 level and approaching the psychological 100 mark, indicating renewed confidence in dollar demand. This trend complicates any potential rebound for the pound in the short term.
Technical Outlook for GBP/USD
Key Levels:
- 1.3842: Key resistance level, aligning with recent highs.
- 1.35477: Nearby barrier indicating a neutral zone.
- 1.34387: Key support level, critical for maintaining the bullish trend.
The bullish trend remains intact despite recent selling pressure. The current price action has not yet breached the bullish trendline established since early November 2025. Indicators such as the RSI suggest indecision in the market, while the TRIX indicator remains above the zero line, indicating that the broader bullish bias is still present.
Conclusion
As long as uncertainty regarding the BoE's policy outlook persists and the U.S. dollar continues to strengthen, selling pressure on GBP/USD is likely to remain significant in the near term. Traders should monitor key technical levels closely to gauge potential shifts in market sentiment.
Written by Julian Pineda, CFA, CMT – Market Analyst