The movement in GBP/USD is initiated by the UK inflation report. In November, the headline CPI decreased to 3.2% year-over-year, down from 3.6%, falling below the consensus estimate of 3.5%. On a monthly basis, prices decreased by 0.2% following a 0.3% increase, indicating a clear signal of disinflation. Core CPI has decreased to 3.2% year-over-year, down from 3.4%. The retail price index experienced a deceleration from 4.3% to 3.8%, whereas the PPI output moderated from 3.6% to 3.4%. This sequence provides the Bank of England with the opportunity to expedite easing measures. The policy rate has been reduced from 5.25% in August 2024 to 4.00%. Markets are now pricing in a nearly certain additional cut of 25 basis points this week, which would bring the Bank Rate down to 3.75%, despite inflation continuing to exceed 2%. Market participants are currently pricing in approximately 69 basis points of cuts through 2026, an increase from the previous 67 basis points prior to the CPI release. Additionally, the anticipated timing for the next full 25 basis point cut has been advanced to April 2026, shifting from the previously expected July 2026. In the short term, this situation is unfavorable for GBP; however, the UK continues to experience higher inflation compared to its peers, maintaining positive real rates.
The labor market effectively rules out any imminent hawkish surprises from the BoE. The unemployment rate increased to 5.1% from 5.0%, marking the highest level in nearly five years. Average earnings, inclusive of bonuses, experienced a deceleration to 4.7% from the previous rate of 4.9%. The alignment of a 3.2% headline CPI, 3.2% core, and an upward trend in joblessness strengthens the argument for additional easing measures. For GBP, this indicates that any rallies fueled solely by “sticky inflation” narratives will be swiftly diminished unless there is a significant improvement in activity data. The movement on the USD leg is less pronounced, yet it holds significant directional relevance. The Dollar Index has rebounded to approximately 98.60 following a decline to a 10-week low. The most recent US jobs report indicated a modest increase of 64k in payrolls for November, with the unemployment rate at 4.6%. However, market reactions were muted, largely overlooking these weaker indicators due to the distortions caused by the extended government shutdown. The Federal Reserve has implemented three rate cuts this year, positioning the target band between 3.50% and 3.75%. It is broadly anticipated that rates will remain unchanged in January.
The upcoming catalyst is the US CPI, with the median expectation set at 3.0% YoY. A 3.0–3.1% print maintains the slow-cut trajectory and reinforces a generally range-bound dollar; a weaker figure would reintroduce downside potential for the dollar and provide GBP/USD with some breathing room. The current slight rebound in the DXY, along with the recalibration by the BoE, provides sufficient grounds to adopt a bearish stance on GBP. Spot GBP/USD is currently trading at approximately 1.3330, reflecting a decline of about 0.7% for the day and positioned slightly above the intraday low close to 1.3310. On the hourly chart, the price has breached both the 100-hour and 200-hour moving averages for the first time since 24 November. These averages are now rolling over above the current price and functioning as dynamic resistance. The short-term regime has transitioned from a buy-the-dip strategy to a sell-the-rally approach, contingent on cable remaining below this moving-average cluster. On the daily chart, the convergence of the 100-day and 200-day moving averages in the 1.3345–1.3359 range is facing pressure from below; a decisive close beneath that range would validate a reestablished medium-term bearish sentiment. Immediate support is identified at 1.3300, followed by 1.3270, with more substantial support located around 1.3200. On certain 4-hour charts, the RSI is positioned below 40, nearing oversold territory. This indicates that any further decline from 1.33 to the 1.3270–1.3200 range will require more effort compared to the previous drop from 1.3460.
Taking a wider perspective, the overall framework for GBP/USD appears to be less pessimistic than what today’s market indicates. Starting from the November base around 1.3000–1.3100, the pair experienced a rally to approximately 1.3460, establishing higher lows and forming an inverse head-and-shoulders pattern on the daily chart. The price has consistently traded above the 15-day moving average at 1.3325 and the 20-day at 1.3278, with both indicators showing an upward trend prior to today’s break. At the recent high, daily RSI (14) was approximately 63.05, indicating strong upside momentum while remaining below the overbought threshold. The established neckline is positioned within the 1.3350–1.3400 range, currently undergoing a retest from the upper side. Provided that 1.3200 remains intact on a daily closing basis and the 15/20-day averages do not completely decline, the current trend suggests a potential move towards 1.3500, with the possibility of reaching 1.3600–1.3725 as a further target. The analysis of rate and macro differentials suggests that a unilateral decline in GBP/USD is unlikely. The UK reports a 3.2% headline CPI, 3.2% core inflation, 4.4% services inflation, and an unemployment rate of 5.1%. The Bank Rate has decreased from 5.25% to 4.00%, with expectations of a further reduction to 3.75% this week. The US is projected to have a CPI close to 3.0%, with unemployment at 4.6%, and a Fed funds range of 3.50–3.75% following three cuts, with just one additional adjustment anticipated in late 2026. UK inflation continues to outpace that of most counterparts, and the Bank of England’s easing expectations are more measured compared to those of the Federal Reserve in the long term. This scenario restricts the rationale for significantly shorting GBP/USD on a structural level. Market behavior indicates that GBP continues to draw interest on risk-on days, with options markets displaying a preference for upside hedges in the range of 1.34–1.35, while retail positioning remains relatively balanced.
The outcome is a two-sided market where unexpected data influences the trajectory, rather than a straightforward decline. Integrating macroeconomic factors and technical analysis, GBP/USD has declined from 1.3460 to approximately 1.3330, with the 1.3350 level now acting as resistance rather than support. The intraday structure indicates a preference for sellers beneath the 100/200-hour moving averages, with downside targets positioned at 1.3300, 1.3270, and subsequently 1.3200, particularly if the US CPI data comes in strong or if the BoE adopts a more dovish stance than currently anticipated. Concurrently, the medium-term range of 1.3000–1.3100 and the inverse head-and-shoulders pattern continue to suggest a potential retest of 1.3500–1.3600 following the completion of this correction. In the short term, the inclination is to Sell in the range of 1.3330–1.3350, with targets set at 1.3300–1.3270–1.3200. From a strategic perspective, any dips into the 1.3200–1.3270 range appear to be favorable buying opportunities, provided that UK data remains stable and the BoE does not indicate an aggressive multi-cut cycle beyond current pricing expectations.