20.02.202620:05 Forex Analysis & Reviews: GBP/USD. Smart Money. Why Is the Pound Falling More Than the Euro?

The GBP/USD pair fully filled the last bullish imbalance (100%), reacted to its lower boundary, rose to the upper boundary of the pattern — and that was where bullish momentum faded. A second reaction to imbalance 14 never occurred, and the pound's quotes fell sharply for three consecutive days. I believe the pound's decline is linked to the strengthening of the U.S. dollar amid the high probability of a large-scale U.S. military operation in Iran. According to experts, this would involve a prolonged and extensive intervention aimed at regime change and the destruction of the country's military and nuclear facilities.

However, over the past week the pound has declined more than the euro. This may be related to UK economic data released this week, particularly the unemployment and inflation reports. Unemployment unexpectedly rose to 5.2%, while inflation fell sharply to 3.0%. As a result, both reports have made monetary policy easing by the Bank of England at its next meeting almost certain.

In addition, three important U.S. reports were released on Wednesday: durable goods orders, building permits, and housing starts. All three supported the dollar. On top of these economic factors, the "Iranian conflict" has increased demand for the dollar as a safe-haven asset. Unfortunately, the bullish setup was undermined by the broader news background. Only the euro currently has a chance to restore it.

The bullish trend in the pound remains intact in any case. Therefore, as long as it holds above 1.3012, greater attention should be paid to bullish signals. The pound's decline may continue to be significant, but it could also end at any time. The euro may take liquidity from the most recent bearish swing, which could trigger an upward reversal. If the euro begins to rise, the pound is likely to follow. Traders cannot continue buying the dollar for several more weeks solely on the basis of a military conflict between the U.S. and Iran.

Friday's news background was highly positive for the pound. Retail sales volumes increased by 1.8% versus market expectations of +0.2%. The manufacturing PMI stood at 52 in February, and the services PMI at 53.9 — both above expectations. Thus, at least in the first half of the day, bulls had sufficient grounds for a strong advance. The absence of such a move once again suggests that the market is ignoring economic data and focusing entirely on the "Iranian conflict."

In the United States, the broader news background remains such that, in the long term, little other than dollar weakness would be expected. The situation in the U.S. remains complex. Labor market data continue to disappoint more often than they impress. Three of the last four FOMC meetings ended with dovish decisions. Military actions under Trump, threats toward Denmark, Mexico, Cuba, Colombia, Iran, EU countries, Canada, and South Korea, criminal proceedings against Jerome Powell, another government shutdown, and the scandal involving U.S. elites in the Epstein case all add to the picture of political and structural challenges in the country. In my view, bulls have sufficient grounds to continue advancing throughout 2026.

A bearish trend would require a strong and stable positive news background for the dollar, which is difficult to expect under Donald Trump. Moreover, the U.S. president himself does not need a strong dollar, as it would keep the trade balance in deficit. Therefore, I still do not believe in a sustained bearish trend for the pound. Too many risk factors continue to weigh on the dollar. If new bearish patterns appear, short positions could be considered, but I would not personally recommend this to traders. I view the recent decline of the pair as partly coincidental.

News Calendar for the U.S. and the United Kingdom:

On February 23, the economic calendar contains no significant entries. The news background is unlikely to influence market sentiment on Monday.

GBP/USD Forecast and Trading Advice:

The broader outlook for the pound remains bullish, although the short-term picture has turned bearish. There are currently no active bullish patterns. There is only a bearish imbalance, to which price must first return and show a reaction before traders can consider potential short positions.

It should be noted that the pound's decline over the past few weeks has been strong enough to temporarily shift the bullish picture toward a bearish one due to an unfavorable combination of circumstances. If Donald Trump had not repeatedly signaled potential attacks on Iran and deployed military vessels to the Persian Gulf, such a sharp decline in the pound would likely not have occurred. Therefore, I believe the decline could end as unexpectedly as it began this week. I do not consider the overall trend to be bearish at this stage.