GBP/USD Price Forecast: Cable Slips Below 1.3500 as Gorton By-Election Shock, BoE Rate Cut Expectations, and a Descending Trendline From 1.3700 Corner the Pound — Sell Into Rallies Above 1.3550

GBP/USD peaked at 1.3575 earlier this week, rode global risk appetite and Nvidia's earnings-fueled equity surge higher, then gave it all back. Cable traded at 1.3492 on Friday morning before slipping to daily lows near 1.3450 by the afternoon session, losing ground even as the FTSE 100 printed a fresh all-time record high. The 10-year gilt yield has fallen to approximately 4.32% — the lowest in over 15 months. The DXY sits at 97.60, down 0.2% on the day. The 10-year U.S. Treasury yield has broken below 4% to 3.978% for the first time since November. January PPI came in scorching at 0.5% headline and 0.8% core — double the consensus — yet the dollar couldn't rally on it because the bond market is more afraid of recession than inflation. None of that helped the pound. A descending trendline drawn from the 1.3700 January swing high continues to cap every recovery attempt, and the Greens' stunning by-election victory in Gorton and Denton has injected precisely the kind of domestic political uncertainty that Sterling cannot absorb while simultaneously facing a BoE rate cut in March. The pound is caught between a record-setting equity market that should support it and a political earthquake that won't let it. That tension resolves lower.

The Gorton and Denton Shock — Why a By-Election 250 Miles From the City Is Moving GBP/USD

The Greens' victory in the Gorton and Denton by-election hit Sterling harder than any macro data release this week. The scale of Labour's defeat has revived questions about Prime Minister Starmer's authority, the party's ability to hold its coalition together, and the broader trajectory of UK fiscal policy. Political instability in the UK doesn't just create headline risk — it directly influences gilt yields, BoE policy expectations, and foreign capital flows into Sterling-denominated assets.

Markets had already priced some political fragility into the pound following months of speculation about Labour's internal divisions. But the by-election result exceeded worst-case scenarios, turning what was a safe seat into a statement of voter rejection. For GBP/USD, the immediate consequence is that the positive feedback loop between rising equities and a stronger pound has broken. The FTSE 100 can hit all-time highs without lifting Sterling because the equity rally is driven by multinational earnings priced in dollars, while the pound is driven by domestic political confidence — and domestic political confidence just took a body blow.

UBS has already flagged that short-term fair value for GBP/USD sits closer to 1.33, well below current levels. That assessment predates the by-election result. If UBS revisits the model with updated political risk inputs, the fair value estimate likely drops further. The pound's inability to benefit from the strongest global equity backdrop in months is a tell — when positive macro tailwinds can't push price higher, it means the headwinds are stronger than they appear.

BoE Rate Cut March Expectations — The Fundamental Anchor Dragging Cable Lower

Firm expectations that the Bank of England will deliver an interest rate cut at the March policy meeting are the single most important structural weight on GBP/USD. The market is pricing a cut with high conviction, and BoE Chief Economist Huw Pill's Friday speech at 13:00 GMT was closely watched for any signals that might either confirm or push back against that expectation.

The rate cut thesis is built on deteriorating UK labor data — recent jobs figures came in weak enough to trigger a sharp selloff in the pound — and a broader recognition that the UK economy is operating below its potential. The BoE finds itself in an uncomfortable position: inflation remains elevated enough to justify holding rates, but growth is soft enough to demand easing. Governor Bailey's recent remarks leaned dovish, and the monetary policy committee's internal dynamics have shifted toward a majority favoring lower rates.

The interest rate differential is the mechanism through which BoE expectations translate into GBP/USD price action. With the Fed holding at 3.50%-3.75% and showing zero urgency to cut (97.9% probability of unchanged rates through April), every BoE cut widens the rate gap in the dollar's favor. If the BoE cuts 25 basis points in March and the Fed holds, the differential moves from roughly 125-150 bps to 100-125 bps — still in the dollar's favor, but the direction of change is what drives currency flows, not the absolute level. Capital moves toward currencies where rates are rising or holding, away from currencies where rates are falling. The pound is on the wrong side of that equation.

The Descending Trendline From 1.3700 — GBP/USD Technical Structure Points Lower

The two-hour chart tells a clean bearish story. GBP/USD was rejected by the descending trendline drawn from the January high near 1.3700 after briefly tagging 1.3575 mid-week. The rejection was textbook: a sharp drop to 1.3450 followed by a weak recovery that failed to reclaim the trendline. The candle structure — mixed bodies, prominent upper wicks — confirms sellers are present on every bounce and buyers lack the conviction to sustain rallies.

The 50-EMA at 1.3510 is acting as immediate resistance on the two-hour timeframe. The 200-EMA at 1.3560 sits above, reinforcing the bearish structure. On the daily chart, the critical level is the 20-day EMA at 1.3550 — cable has been unable to close above this barrier, and it functions as the dividing line between "neutral with a bearish tilt" and "outright bearish." The RSI on both timeframes hovers near 40-48, signaling muted momentum that leans slightly negative without reaching oversold conditions that might trigger a counter-trend bounce.

Elliott Wave Structure — The Long-Term Bull Case Requires Holding 1.3338

From a longer-term perspective, Elliott Wave analysis on the weekly timeframe identifies an ascending wave of larger degree (A) of B in progress. Within that structure, wave 1 of (A) has completed, a downward correction finished as wave 2 of (A), and the third wave 3 of (A) is developing on the daily chart. Within wave 3, the first sub-wave i of 3 has formed, a correction completed as ii of 3, and wave iii of 3 is now in progress. On the four-hour chart, wave (i) of iii has formed and wave (ii) of iii is nearing completion as a local correction.

The critical pivot level is 1.3338. If GBP/USD holds above it, the Elliott structure projects a continuation higher toward 1.4050-1.4300 once the current correction completes. A breakdown below 1.3338 invalidates the bullish count and opens decline targets of 1.3170 and then 1.3000. Current price at 1.3450-1.3492 sits 112-154 pips above that pivot — a meaningful buffer, but one that could evaporate quickly if the March BoE cut materializes alongside continued political deterioration.

Key GBP/USD Levels — The Complete Map for March Positioning

Resistance: 1.3510 (50-EMA, 2-hour) → 1.3525-1.3530 (minor support-turned-resistance per UoB) → 1.3550 (20-day EMA, daily chart barrier) → 1.3560 (200-EMA, 2-hour) → 1.3575 (this week's high) → 1.3583 → 1.3585 (UoB upside test level) → 1.3605 (major resistance, UoB) → 1.3680 → 1.3700 (descending trendline origin, January swing) → 1.3830 (January high).

Support: 1.3450 (Friday lows and February 19th low area) → 1.3434 (February 19th exact low, horizontal confluence) → 1.3408 → 1.3360 (deeper pullback zone) → 1.3338 (Elliott Wave pivot — the line in the sand) → 1.3170 (EW breakdown target) → 1.3000 (psychological and EW extension).

The 1.3434 level is where the near-term directional battle will be fought. A daily close below it would confirm the resumption of the downtrend from the 1.3700 January high and target the 1.3360 zone, with the Elliott pivot at 1.3338 as the next major test. Conversely, a reclaim of 1.3550 on a closing basis would break the 20-day EMA resistance, negate the immediate bearish setup, and reopen the path toward 1.3680 and potentially a retest of the January high at 1.3830.

Trade Policy Chaos and Geopolitical Crosscurrents — Why the Dollar Can't Capitalize Fully

The reason GBP/USD hasn't already cracked 1.3400 despite sterling-specific bearish factors is that the dollar has its own problems. Trump's 15% global tariff, escalated further by Trade Representative Jamieson Greer's warning that countries could face even higher rates, has created maximum uncertainty for the greenback. The Supreme Court ruling against IEEPA tariffs adds legal ambiguity — the U.S. Trade Representative offered no details on how the higher tariff will be applied where it breaches existing trade agreements. The tariff policy has transformed from a negotiating tool into primarily a revenue instrument, which fundamentally changes how markets price the dollar's safe-haven characteristics.

Geopolitical tensions around Iran provide partial offset. The Middle East escalation risk — U.S. military buildup, evacuations from Israel, failed Geneva nuclear talks — creates safe-haven demand for the dollar that prevents it from falling further, even as the tariff chaos drags on the structural outlook. If Iran tensions escalate significantly, the dollar rally would likely be broad-based and GBP/USD would break lower aggressively. If tensions de-escalate, the dollar loses its safe-haven bid, but Sterling's domestic problems would prevent it from capitalizing fully. Either way, the pound is on the weaker side of the trade.

10-Year Yields — UK Gilts at 4.32% vs U.S. Treasuries Below 4%

The yield picture adds a nuanced dimension. UK 10-year gilts have fallen to approximately 4.32%, the lowest in over 15 months, reflecting both BoE rate cut expectations and a flight toward safety amid political uncertainty. U.S. 10-year Treasuries have dropped below 4% to 3.978%. The spread between UK and U.S. 10-year yields has actually compressed slightly — gilts still yield more than Treasuries — which in isolation should support the pound. But currency markets are pricing the direction of rates more than the current spread, and the direction for UK rates is unambiguously lower relative to the U.S.

The gilt rally also reflects investor positioning: buying gilts (pushing yields down) while selling sterling creates a hedged position that profits from BoE rate cuts. The negative correlation between gilt prices and the pound's exchange rate is a structural feature of the current environment and won't reverse until the BoE's rate path stabilizes.

FTSE 100 Record High — Why Sterling Ignores the Equity Surge

The FTSE 100 printing fresh all-time highs while sterling drops is not a contradiction — it's a feature of the UK equity market's composition. The index is dominated by multinational companies earning revenue in dollars, euros, and other currencies. A weaker pound mechanically inflates their reported earnings in sterling terms, which pushes the index higher. The FTSE 100 benefits from pound weakness; the pound doesn't benefit from FTSE strength. Understanding this relationship is essential for positioning — the record FTSE is not a bullish signal for GBP/USD, it's a confirming signal that the market expects further sterling depreciation.

The Verdict — GBP/USD Is a Sell Below 1.3550 Targeting 1.3338

The weight of evidence tilts decisively bearish for cable. The BoE is heading into a rate cut cycle while the Fed sits at 3.75% with no urgency to move. The Gorton by-election has injected political uncertainty that caps Sterling's ability to benefit from positive global equity conditions. The descending trendline from 1.3700 has rejected every rally this month. The 20-day EMA at 1.3550 is acting as an impenetrable ceiling. The RSI at 40-48 confirms fading momentum without oversold conditions that would warrant caution. UBS sees fair value at 1.33. The Elliott Wave pivot at 1.3338 is the structural floor that defines whether the longer-term bull case survives.

Sell GBP/USD on any rally toward the 1.3510-1.3550 zone (50-EMA to 20-day EMA convergence) with a stop above 1.3605. The primary target is 1.3360, with an extension to 1.3338 if momentum carries through. A daily close below 1.3338 would trigger a structural breakdown targeting 1.3170 and then 1.3000 — an additional 330-500 pips of downside from the pivot level. The only scenario that flips the bias to neutral-bullish is a confirmed daily close above 1.3550, which would indicate the 20-day EMA ceiling has been broken and open a path toward 1.3680. Until that happens, sell rallies, don't buy dips. March's BoE meeting is the next major catalyst, and the market has already shown its hand: the pound falls into rate cuts, and the rate cut is coming.

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