Sterling trading was supposed to be the loose cannon of 2024–25. The Truss-era gilt market memory was fresh, the new Labour government inherited a fiscal mess, and the consensus pre-trade was for cable below 1.20. What actually happened was a tight 1.24–1.32 range and a quietly competent budget that mostly stayed inside gilt-market guardrails.
Three forces driving the cross in 2026
- BoE rate path — the MPC has held a more cautious cutting cycle than the ECB; the rate differential to USD is wider than to EUR, supporting GBP on a relative basis.
- Fiscal credibility — gilt yields have been the binding constraint on every UK government since 2022. Markets give Labour roughly two budget cycles before the patience runs out.
- Dollar leg — cable is two trades stacked. GBP/USD often moves more on what USD is doing globally than on UK-specific news.
What would break the range
Lower bound (sub-1.20): a fiscal surprise that re-priced the gilt curve violently, combined with a US data surprise that strengthened USD. Both legs would need to fire together. Upper bound (above 1.35): an unexpected BoE hawkish pivot — sticky services inflation forcing a pause-to-cut shift — combined with broad USD weakness.
Intraday character
GBP is most liquid in the London session by a wide margin. The 09:30 UK macro print window is the highest-vol slot. Cable spreads at retail brokers vary more than majors — comparison matters. Brexit-era headline shocks left a residual gap-risk premium in the options market that has persisted.