The Bank of England surprised no one by cutting interest rates by 25bps this week, bringing the base rate down to 4.00%. But what caught traders off guard was the GBP’s reaction. Instead of falling, it rebounded.
That’s not what we expected and it’s exactly why retail traders should be paying attention right now.
Why Did GBP Strengthen After a Rate Cut?
Retail traders often expect a currency to weaken after a rate cut. That’s the textbook response. But this time, GBP/USD jumped higher, breaking back above 1.3400, largely because:
The vote was closer than expected: Four of nine MPC members voted against the cut, signalling hesitation.
The BoE warned of rising inflation: Governor Andrew Bailey warned inflation could peak higher than expected, reducing the urgency for future cuts.
Markets had priced in more cuts: Before the announcement, money markets expected another cut by December. Now? The next move isn’t fully priced until February 2026.
That shift in expectations is what gave GBP support.
GBP/USD: Breakout or Rangebound?
The pair is trading above 1.3400, but under key trendline resistance stretching from the July highs.
GBP strength is being supported by reduced BoE cut expectations, but also by broad USD weakness after soft U.S. jobs data.
Poor UK data in recent weeks (retail sales, manufacturing, PMI) could limit upside in the pound.
Bottom line: Without better data, GBP/USD could chop sideways. But if inflation holds or surprises to the upside, we may see a clean break higher.
What’s on my watchlist:
UK Inflation Data – If CPI remains sticky, rate cut bets get pushed even further out, which is bullish GBP.
Trendline Break on GBP/USD – A close above the July trendline could open up a run toward 1.3600.
US Data & Fed Expectations – Continued softening in U.S. data supports the idea of a weaker USD into the September FOMC.