Pound Sterling Recovers as BoE Signals Inflation Risks Remain

Modified: Thursday, 19 March 2026 21:31 BST - Written by Frank Davies

STORY LINK Pound Sterling Recovers as BoE Signals Inflation Risks Remain

The Pound US Dollar (GBP/USD) exchange rate saw choppy movement on Thursday, recovering some ground after the previous session’s losses as markets reacted to policy decisions from both the Federal Reserve and the Bank of England.

At the time of writing, GBP/USD was trading at $1.3351, having bounced from earlier lows but remaining below its levels from the day before.

The Pound initially traded without clear direction, with GBP exchange rates fluctuating as the currency attempted to claw back losses.

A mixed set of UK labour figures failed to provide a strong catalyst. While the unemployment rate unexpectedly held steady, easing some concerns, softer-than-anticipated wage growth tempered any optimism.

Sterling found some underlying support from growing market expectations that the Bank of England may still need to tighten policy later this year, particularly as rising energy costs linked to the conflict in Iran add to inflationary pressures.

These expectations were reinforced by the Bank of England’s latest policy decision. Although policymakers left interest rates unchanged, the tone of the announcement struck a distinctly hawkish note.

The central bank raised its inflation forecasts and signalled it stands ‘ready to act’ if higher energy prices, driven by Middle East tensions, begin to feed more persistently into broader price growth.

Following the decision, markets shifted to price in the possibility of two rate hikes before the end of the year, helping to underpin the Pound.

However, gains in Sterling remained capped amid ongoing concerns that elevated borrowing costs and surging energy prices could weigh on the UK’s economic outlook, while a cautious risk-off mood in wider markets also curbed demand.

The US Dollar opened on solid footing, buoyed by the Federal Reserve’s policy announcement late the previous evening.

The Federal Reserve delivered a near-unanimous decision to leave interest rates unchanged, but an upward revision to both growth and inflation projections prompted investors to scale back expectations for rate cuts later this year.

This more hawkish outlook helped underpin the ‘Greenback’, reinforcing its appeal in the wake of the decision.

However, the US Dollar struggled to extend its advance into the European session. Despite a broadly cautious market backdrop, movement was more muted, though it still retained a sizeable share of its overnight gains.

Short-Term GBP/USD Forecast: Geopolitics to Drive Direction

Friday brings limited UK data in the form of the Confederation of British Industry’s latest industrial trends orders. If the figures reflect a deeper contraction, as forecasts suggest, the Pound may come under some light pressure.

Broader market sentiment is likely to remain the key driver of movement in the Pound US Dollar exchange rate, with investors closely monitoring developments in the Middle East.

Any escalation in the conflict could weigh on risk appetite, potentially dragging on Sterling while boosting demand for the safe-haven US Dollar. In such a scenario, the US Dollar may strengthen, leaving GBP/USD on the back foot.

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TAGS: Pound Dollar Forecasts