The recent movement in GBP/USD is underpinned by a fundamentally weaker USD. The dollar index is currently positioned between 98.20 and 98.34 within a distinct descending channel. Resistance levels are identified near 98.76 and 99.24, while support is found around 97.80 and 97.47. The price is currently positioned beneath the 20- and 50-day EMAs, which are both trending downward, indicating that any upward movement is met with selling pressure at the upper boundary of the channel. Futures pricing is directly confronting the Fed. Markets indicate a probability of approximately 58% for at least two additional cuts by October 2026, whereas official forecasts suggest a policy rate close to 3.4% by the end of 2026, which implies only one further adjustment in the coming year. The prevailing gap maintains pressure on the USD until forthcoming data necessitates a reassessment. Political signaling introduces additional pressure. Public backing from Donald Trump for additional easing following the recent 25-bp cut undermines any efforts by the Fed to convey a restrictive stance. As long as communication remains “data dependent” and politicians support lower rates, it is challenging to sustain dollar rallies.
The primary driver for GBP/USD in the medium term is the disparity in interest rates. The Fed funds target currently stands at approximately 3.50–3.75%, a result of a series of reductions influenced by the deceleration of US economic growth, projected to continue into 2025. The Bank of England maintains the Bank Rate at approximately 5.0%, as UK inflation lingers around 3.1% and expectations among households and businesses continue to be high. The approximately 125–150 bps positive carry in favor of GBP is essential. It encourages macro and carry desks to acquire the pound against the dollar during dips instead of pursuing USD strength. This is reflected in the forward curves. Market participants anticipate that the Bank of England will adopt a more cautious and delayed approach to easing compared to the Federal Reserve. Multiple forecasts incorporate three further 25-basis-point reductions by 2026, originating from a distinctly elevated baseline. The policy mix indicates a Federal Reserve compelled to implement quicker easing measures, while the Bank of England is adopting a cautious and gradual approach to cuts. For GBP/USD, this combination supports the expectation of elevated levels in the upcoming six to twelve months, with fluctuations influenced by data and risk sentiment.
Sterling is not experiencing an upward movement despite solid macroeconomic fundamentals. It is steadily increasing in value as the USD weakens, although UK data raises some uncertainty. October GDP registered at minus 0.1%, mirroring a minus 0.1% drop from the prior month. This development provides markets with sufficient grounds to discuss the potential for a technical recession and to anticipate a more dovish trajectory from the BoE following the upcoming meeting. Recent performance indicates a delicate combination. The momentum for growth is diminishing. The fiscal stance exhibits disinflationary characteristics. The labor market is showing signs of softening, which is expected to lead to a gradual cooling of wage growth. The current environment enables the BoE to indicate potential cuts; however, it does not warrant a drastic shift in policy as long as inflation persists above the target and expectations remain entrenched. The outcome indicates a ceiling effect for GBP/USD. The rate differential suggests a movement past 1.35; however, concerns regarding domestic growth create selling pressure in the 1.34–1.35 range, reinforcing medium-term forecasts that point toward 1.27 as current optimism diminishes. Spot GBP/USD has incorporated a significant portion of the Fed’s dovish shift. The pair surged to a seven-week peak just under 1.3400, reaching intraday highs near 1.338–1.339, before consolidating within the 1.3360–1.3387 range as traders secured profits. The current zone has emerged as the main arena for momentum buyers and strategic sellers. Strategists are divided based on their timeframes. In the short term, numerous desks continue to view GBP/USD as a buy-the-dip opportunity, provided that the Fed maintains an easing stance and the BoE’s rhetoric does not turn overly dovish. In the medium term, several institutional forecasts suggest a decline towards 1.27 by the end of 2026 as the Federal Reserve concludes its easing cycle, US growth stabilizes, and the dollar recovers some of its losses. The 1.27 level represents a plausible downside trajectory, without suggesting a significant crisis for the sterling. It suggests a return to normalcy as the rate-spread premium decreases and UK data risks come back into focus.
From a purely technical standpoint, GBP/USD continues to exhibit a favorable uptrend, even in light of the recent pullback. Since mid-November, the price has been fluctuating within an upward channel. The latest upward movement encountered resistance near 1.3425, positioned close to the upper limit and slightly above the significant 1.3400 level. Following the selling pressure, the pair retraced to approximately 1.3387, with intraday lows hovering around 1.3360 near the mid-line of the channel. The market structure continues to exhibit bullish characteristics as the spot price remains above the 20- and 50-day EMAs, which are both trending upwards and serving as dynamic support levels. Momentum indicators validate a trend that remains extended yet unbroken. The RSI has moved out of overbought territory, lowering the risk of a blow-off top, but it does not indicate a significant reversal. The observed pattern typically signals an upcoming phase of consolidation or minor declines before making another effort to reach previous highs, assuming that macroeconomic developments do not disrupt the fundamental narrative.
The support structure for GBP/USD is well-defined and organized. Around 1.3360 is the initial critical zone, corresponding with the channel mid-line and recent intraday lows. Provided that daily closes remain above that band, short-term bulls continue to hold the upper hand. Below that, 1.3287 serves as a critical pivot point, coinciding with the 50-day EMA and previous horizontal support levels. A decisive break under 1.3287 would indicate that the most recent phase of the rally has been completely reversed and that dip-buyers are showing reduced willingness to enter the market. The concluding point on the existing configuration is approximately 1.3233 at the channel’s lower boundary. A daily close below that level would effectively negate the mid-November bullish channel and pave the way for a decline toward the 1.3000–1.3050 area, followed by a potential move to the 1.27 zone anticipated by several medium-term forecasts. These levels establish the parameters for risk management in positioning. As long as the spot remains above 1.3287–1.3233, pursuing aggressive short GBP/USD strategies is fundamentally at odds with both the chart patterns and the rate differential.