GBP/USD trapped below 1.33 as the BoE's rate dilemma deepens

Thursday's session was a downer for the British Pound. GBP/USD opened near 1.3300, sold off steadily through the day, and closed around 1.3220, losing 0.65%. The 50-day exponential moving average (EMA) near 1.3400 and the 200-day EMA around 1.3360 both remain a tricky technical hurdle, and the pair continues to close well below both. The Stochastic RSI sits at 73, which is elevated but not yet overbought, meaning there is room for the selloff to extend before momentum indicators start flashing warning signs. Looking lower, there is not much standing between current levels and the 2026 low near 1.3080 set in mid-March.

How the Pound went from rate cuts to rate hikes in six weeks

It is worth stepping back and appreciating how dramatically the outlook for the Bank of England (BoE) has shifted since the Iran war began. In February, markets were pricing in at least two rate cuts for 2026, with a move as early as March looking like a near certainty. The BoE had already cut rates by 150 basis points since August 2024, bringing the Bank Rate to 3.75%, and UK inflation had been falling toward the 2% target. Then the Strait of Hormuz closed, Oil surged above $100, and everything changed. By mid-March, swap markets had flipped entirely, pricing in as many as four rate hikes. That number has since come down to around two, but the mere fact that the market went from expecting easing to pricing tightening in the span of weeks tells you how much damage the energy shock has done to the UK's inflation outlook. The BoE's own staff now projects Consumer Price Index (CPI) inflation reaching 3.5% by the third quarter of 2026, up from a pre-war forecast of around 2%.

Bailey says hold, but the data might not let him

BoE Governor Andrew Bailey tried to calm things down on Tuesday, telling Reuters that markets are "getting ahead of themselves" on rate hike expectations. His message was clear: the BoE held in March by unanimous vote, and the April 30 meeting will be another assessment, not a foregone conclusion. But Bailey is walking a tightrope. JP Morgan economist Allan Monks has argued that the conditions for an April hike could be met if energy prices stay elevated and firms begin passing costs through to consumers. Deutsche Bank's Sanjay Raja has gone further, saying that risks of "early and multiple hikes no longer look misplaced." The UK is particularly vulnerable here. The country imports roughly 40% of its Oil and up to 60% of its natural gas, making it one of the most energy-exposed economies in the G7. The Ofgem price cap shields households until July, but after that, the full force of higher wholesale energy costs will hit consumer bills. BoE policymaker Megan Greene noted in the March minutes that "the risk of inflation persistence has risen, perhaps significantly" in light of the supply shock.

The technical damage is hard to ignore

From a chart perspective, Thursday's breakdown is the kind of session that changes the tone of a trend. GBP/USD had been consolidating between 1.3200 and 1.3450 for most of March, with the 200-day EMA acting as a rough floor. That floor is gone now. The pair closed more than 100 pips below the 200-day EMA, and both moving averages are likely to begin curling lower if price stays at these levels. The 2026 range is well defined, with the January high at 1.3870 as the ceiling and the March low near 1.3080 as the floor. A retest of that floor from current levels would represent barely another 140 pips of downside. Below 1.3080, the next area of interest does not emerge until the 1.2950-1.3000 zone, which dates back to late 2025 price action. On the upside, the broken 200-day EMA close to 1.3350 becomes the first level that bulls would need to reclaim to stabilize the picture, and that is now more than 100 pips overhead.

Friday's NFP and the long weekend gap risk

The immediate catalyst is Friday's Nonfarm Payrolls (NFP) report out of the US, due at 12:30 GMT. The consensus is for roughly +57K jobs, a rebound from February's -92K, and Thursday's strong jobless claims print of 202K suggests the risks may be skewed to the upside. US equity markets are closed for Good Friday, which means liquidity across all Dollar pairs, including GBP/USD, will be thinner than usual. A strong NFP number would likely push the Dollar higher and drag GBP/USD closer to the March lows. A miss could offer a brief reprieve, but with the BoE stuck between an inflation shock and a stalling economy, Sterling does not have a clean bullish catalyst of its own to lean on. The broader picture remains one where the Pound is caught between a Federal Reserve (Fed) that cannot cut and a BoE that cannot decide whether to hike. Until one of those central banks blinks, or the Oil shock resolves, the path of least resistance for GBP/USD continues to point lower. The question heading into the long weekend is not whether the pair retests 1.3080, but whether it holds when it gets there.

GBP/USD daily chart