GBP/USD is currently positioned between 1.34 and 1.3430 following a significant intraday shift primarily influenced by macroeconomic data and adjustments in central bank expectations. In the United States, November nonfarm payrolls increased by just 64,000 following a decline of 105,000 in October, and the unemployment rate rose from 4.4% to 4.6%. Retail sales for October remained unchanged at 0.0%, while the “control group” showed a recovery of 0.8% following a decline of -0.1%, presenting a mixed outlook on growth. The dollar index has declined towards the 97.9 level, allowing GBP/USD to advance into the 1.3430–1.3450 range. On the UK side, the pair is being influenced in the opposite direction by the potential for a 25 bp cut from the Bank of England to 3.75%, despite data not entirely supporting a robust easing cycle. The outcome reflects a pair that is currently bid, yet facing escalating event risk ahead.
Domestic activity in the UK is not in freefall; it’s finding its footing. The composite PMI for December showed an improvement, rising to 52.1 from 51.2, surpassing expectations of 51.6 and remaining above the 50 expansion threshold. Behind the scenes, input prices increased at the quickest rate since May, while output prices surged to their highest point since August, indicating that companies are once more transferring costs throughout the system. The combination of PMI at 52.1 and the re-acceleration of cost pressures does not support an aggressive easing cycle, which explains why GBP is outperforming its weaker-growth counterparts. Simultaneously, the labor market is evidently showing signs of softening. The ILO unemployment rate for the three months ending in October increased to 5.1%, up from 5.0%, marking the highest level since early 2021. In November, there was an increase of 20,100 in claimant counts, while payrolls experienced a decline of approximately 17,000 in October. Wage growth remains strong but is showing signs of moderation: average earnings excluding bonuses have increased by 4.6% year-over-year, while total pay has risen by 4.7%. Both figures are below previous highs and are approaching the inflation rate, which was last recorded at approximately 4.1%.
For GBP, this situation is complex: growth remains stable, pricing power is returning, yet the labor market is loosening. That is precisely the type of environment in which the BoE can rationalize a measured 25 bp cut, but not an aggressive easing trajectory. That is why there is potential for appreciation in GBP/USD; however, it faces a significant barrier if the Bank indicates more than approximately 50–60 basis points of cuts for 2026. On the USD side, the data are undermining the “higher for longer” narrative. November payrolls at 64,000 exceeded the 50,000 consensus, yet appear weak when compared to the revised figure of -105,000 for October. The increase in the unemployment rate to 4.6%, compared to the anticipated 4.5% and the previous 4.4%, indicates that slack is developing in the labor market. Retail sales at 0.0% for October, compared to the expected 0.1%, support the cooling narrative, although the GDP-relevant control group at +0.8% mitigates some of that weakness. Market participants appear to be anticipating a Federal Reserve that has completed its rate hikes and is likely to implement cuts in 2026, exceeding the projections provided by the Fed itself. Every soft datapoint—64k jobs, 4.6% unemployment, flat headline sales—encourages investors to lean more towards that perspective. Consequently, dollar rallies are being systematically sold off, and GBP/USD is responding exactly as anticipated: each decline toward the 1.33–1.3350 area is attracting buyers once again.
Current rate expectations are primarily driving the movements in GBP/USD. There is an estimated probability of approximately 85–92% that the Bank of England will reduce the Bank Rate from 4.00% to 3.75% in the forthcoming meeting. Market participants anticipate approximately 50–60 basis points of overall easing by 2026. In isolation, this indicates a bearish outlook for GBP. However, the Fed’s stance appears to be more dovish in market pricing compared to its official communication. Market participants anticipate several reductions in 2026, even in light of the Fed’s more measured approach. With U.S. unemployment at 4.6%, job gains at 64k, and growth indicators moderating, there is a risk that the Fed may ultimately align with market pricing, rather than the reverse occurring. The existing asymmetry limits the potential for USD appreciation. In the context of GBP/USD, this indicates: a clear 25 bp cut from the BoE, accompanied by a measured tone indicating approximately 50 bp of cuts in 2026, is likely to maintain support for the pair above 1.33, facilitating retests of the 1.3470–1.3500 range, while an unexpectedly dovish signal from the BoE—suggesting more than 50–60 bp of easing next year—could pull GBP/USD back toward 1.33 or even 1.3220, particularly if the Fed avoids similar dovish language concurrently. Short-term price action shows the GBP/USD’s break above 1.34 is genuine, though it is encountering significant resistance levels. From a purely observational standpoint, the recent formation appears favorable yet extended, with the pair trading above the 200-day simple moving average around 1.3360, which now serves as primary support. Intraday highs in the 1.3415–1.3432 range indicate solid demand above 1.34, resistance persists in the 1.3400–1.3440 zone, and a wider upside target lies between 1.3471 and the psychological 1.3500 level. Provided spot remains above 1.3350, the market continues to signal willingness to buy GBP/USD ahead of event risk rather than fade strength.