Why Sterling’s Surge Toward $1.37 Could Flip Your Portfolio – Act Now

• Sterling eyes $1.37 as US jobs data looms, offering upside for forex‑focused investors.
• Dovish tone from the Bank of England hints at more rate cuts, boosting the pound’s momentum.
• UK political drama eases, removing a bearish catalyst for GBP.
• Dollar weakness may linger post‑jobs, widening the GBP/USD spread.
• Bullish scenario: GBP breaks $1.387, targeting $1.40; Bearish: rapid US rate hikes pull dollar back, dragging GBP down.

You’re probably still watching the dollar, but the pound just handed you a hidden profit chance.

Why Sterling’s Near‑$1.37 Move Beats the Dollar’s Weakness

The British pound is marching toward $1.37, a level not seen since late January. The catalyst? A softening U.S. dollar ahead of the January employment report, which markets expect to show modest hiring growth. A weaker dollar reduces the demand for safe‑haven assets, and because GBP is priced in dollars, every cent of dollar depreciation translates directly into pound appreciation. In forex terms, the USD/GBP pair is reacting to the “risk‑on” bias that typically follows a neutral jobs print, as investors shift capital into higher‑yielding assets like the UK gilt market.

Bank of England’s Dovish Pivot: What It Means for GBP Yield Curve

On the policy front, the Bank of England left its benchmark rate unchanged at 3.75% but delivered a noticeably more dovish tone. The split vote—four to three—signals internal disagreement, yet the prevailing message was that inflation could drift back toward the 2% target as early as April. This forward guidance reduces the risk premium embedded in UK government bonds, flattening the yield curve and making the pound more attractive to carry‑trade investors. A lower implied cost of borrowing also supports corporate earnings, feeding back into a stronger currency.

UK Political Turmoil Settles – Impact on Currency Risk Premium

Political risk has been a silent drag on sterling since the resignation of Prime Minister Keir Starmer’s chief of staff, Morgan McSweeney, amid the Lord Peter Mandelson controversy. With Starmer securing cabinet backing and the Labour Party coalescing, the uncertainty premium is receding. Forex markets price political stability heavily; a cohesive government lowers the “country risk” component, which, in turn, lifts the pound. The resolution of the Mandelson saga also removes a potential flashpoint for market volatility, allowing technical traders to focus on price action rather than headline risk.

Sector Trend: Forex Markets React to Diverging Central Bank Policies

Globally, central banks are diverging. The European Central Bank remains cautious, keeping rates steady while signaling future hikes if inflation persists. Meanwhile, the Federal Reserve is poised to tighten, with many economists forecasting a 25‑basis‑point increase in the coming weeks. This policy divergence creates a widening “interest‑rate differential” between the dollar and the pound, which traditionally favors the currency with higher real yields—in this case, sterling. The net effect is a structural upside for GBP/USD, especially if the Fed’s tightening outpaces the BoE’s easing.

Historical Parallel: GBP’s 2023 Rally After Rate Cut Hints

History offers a useful template. In mid‑2023, the BoE hinted at a rate cut after a period of stubborn inflation, and the pound rallied from $1.21 to $1.28 within six weeks. The move was reinforced by a dovish Fed and a weakening euro. When the Fed later signaled a pause, GBP/USD steadied but remained above $1.25 for the remainder of the year. The pattern suggests that once the market internalizes a credible easing trajectory, momentum can sustain itself well beyond the initial catalyst.

Investor Playbook: Bull vs Bear Cases for GBP/USD

Bull Case: If the jobs report shows a slower‑than‑expected payroll growth, the dollar could weaken further, pushing GBP/USD above the $1.387 ceiling and toward $1.40. Additional BoE dovishness—perhaps a rate cut in Q2—would amplify the upside, rewarding carry‑trade positions and long‑dated GBP exposure.

Bear Case: Conversely, if U.S. employment exceeds expectations, the Fed may accelerate its tightening cycle, strengthening the dollar and pulling the pair back below $1.35. A surprise hawkish pivot from the BoE, driven by an unexpected inflation spike, would also cap upside and could trigger a short‑term correction.

Positioning tip: Consider a staggered approach—allocate a core long position on GBP/USD with a modest stop‑loss near $1.33, and overlay a short‑dated option strategy to capture the upside while hedging against a sudden dollar rally.