GBP/USD is currently positioned at $1.3501, maintaining Wednesday’s closing level as we approach the December 25 holiday, while adhering to a clear ascending channel that has been instrumental in the uptrend since late November. The US Dollar Index, currently around 97.95, is confined within a descending channel that has restricted every upward movement since mid-November. DXY is currently positioned beneath the 50-day and 200-day EMAs, with the previous support level around 98.10 now functioning as resistance, consistently drawing in sellers during attempts to return to that area. The current split structure indicates a bullish outlook for GBP/USD and a bearish stance on DXY, suggesting that further strength in sterling is likely, provided the pair remains above the $1.3470–$1.3480 range and stays comfortably above the ascending 200-EMA around $1.3330. The recent pullback observed on the 2-hour chart from the $1.3535–$1.3540 range has been relatively shallow, characterized by small-bodied candles and minimal downside follow-through, indicating a phase of consolidation rather than distribution. GBP/USD remains positioned above the 50-EMA, with the 200-EMA trending upward beneath $1.3330, indicating a sustained bullish sentiment.
The previous resistance zone at $1.3470–$1.3480 has transitioned into short-term support, while the RSI has declined from overbought levels around 70 to approximately 55, suggesting a moderation in momentum without signaling a bearish reversal. The current setup supports dip-buying near $1.3475, with potential upward movement targeting $1.3580 initially, assuming the dollar stays contained. On a wider scale, GBP/USD has initiated a measured rebound from the low-$1.30s observed in the autumn. Monthly averages close to 1.3149 in November and spot levels approximately 1.3344 as we approach Christmas have transitioned to readings around $1.3501 on the short-term charts. This gradual increase indicates a re-evaluation of monetary policy in both the UK and the US, rather than a singular adjustment. Earlier in the quarter, the pair was nearer to $1.24 as traders adjusted their expectations regarding the UK’s growth outlook and expressed concerns about persistent inflation. The movement into the mid-$1.30s indicates that sterling has experienced an upward revaluation against a dollar that is currently anticipated to ease rather than undergo additional aggressive tightening. The US Dollar Index, currently around 97.95, is limited by projections of approximately two Federal Reserve rate cuts anticipated in 2026. This situation persists despite the rebound in yields, with the 2-year Treasury at approximately 3.53% and the 10-year close to 4.16%. Markets are indicating that although US growth remains strong, the tightening cycle has reached its peak, and the next significant move for policy rates is downward rather than upward. The outlook indicates continued strength in USD, which favors higher-beta pairs such as GBP/USD. This suggests that investors are increasingly inclined to shift from dollar cash into currencies that provide improved carry and mean-reversion opportunities following a period of significant underperformance. Recent US macro data continues to show strength; however, it no longer provides the same level of positive surprise for the USD. Preliminary Q3 GDP recorded an annualized rate of 4.3%, while core PCE increased by 2.9% quarter-on-quarter, aligning closely with expectations and remaining above, yet not significantly deviating from, the Fed’s target. Non-farm payrolls have consistently demonstrated robust job creation.
This combination supports a prudent approach from the Fed, yet it does not reignite the inflation concerns that fueled the previous dollar bull market. In the case of GBP/USD, this indicates that the dollar may maintain its support, but the momentum for a significant USD rally is lacking, allowing for the potential of sterling to further its gains within its upward trend channel. Cross-currency dynamics indicate that sterling has demonstrated greater strength. EUR/USD has risen into the $1.17–$1.18 range on the 2-hour chart, currently positioned around $1.1779 following a structured pullback from $1.1805. Support is identified at $1.1745–$1.1750, with both the 50- and 200-EMAs trending upward. Earlier in the month, the pair was observed trading near 1.0850 as German data began to show signs of improvement. During approximately the same timeframe, GBP/USD increased from about $1.24 to $1.35, indicating a more significant adjustment in favor of sterling compared to the euro. The performance gap highlights that markets are more vigorously unwinding the previously extreme pessimism regarding the UK compared to the repricing of the Eurozone. The overall FX landscape indicates a limited USD, which in turn provides indirect support for GBP/USD. USD/JPY is currently positioned around 149.50 as market participants assess the likelihood of additional Federal Reserve rate increases in contrast to a more reserved stance from the Bank of Japan. However, the pair has ceased to reach new highs, indicating that the most intense period of dollar strength against the yen could be concluding. AUD/USD has strengthened toward 0.6500 due to better commodity pricing and improved demand from China, while USD/CAD has risen close to 1.3600 in response to weak Canadian employment data and declining oil prices.
The current mixed environment, while generally limiting the USD, supports potential further gains for GBP/USD, provided that risks specific to the UK do not escalate. The Bank of England has initiated a gradual shift from peak tightening, reducing the Bank Rate by 25 bps to approximately 3.75% as UK annual inflation decreased to around 3.2% from about 3.6%. Inflation has significantly decreased from its peak but is still above the target, placing the Bank of England in a distinct situation compared to the Federal Reserve: currently easing, yet from comparatively elevated levels. For GBP/USD, this is significant for carry. The Bank of England’s gradual approach, coupled with slightly positive real rates, establishes a support level for sterling, especially against a dollar that anticipates a more significant cutting cycle in 2026. Earlier in the year, elevated UK inflation and stringent monetary policy led to sterling being perceived as a problematic currency, with GBP/USD momentarily dipping toward $1.24 as market participants worried that increased rates would dampen domestic demand and heighten fiscal pressures. The current setup—spot approximately $1.3501, inflation close to 3.2%, policy rate at 3.75%—indicates a distinct environment. Sterling has moved away from trading with a constant crisis discount; it now reacts to fundamental factors such as rate differentials, growth prospects, and overall risk sentiment. The recent shift indicates that movements into the low-$1.34s, particularly approaching the 200-EMA around $1.3330, are more inclined to attract buyers rather than initiate forced liquidation, unless there is a significant negative development from the UK. The macroeconomic data from the Eurozone also impacts GBP/USD through the dollar component. Preliminary figures indicating a 0.2% quarter-on-quarter increase in Eurozone GDP suggest resilience rather than contraction, supporting the EUR/USD in maintaining its upward trajectory. As EUR/USD and GBP/USD continue to trend upward, the prospects for DXY to achieve a sustainable recovery appear to be diminishing. The dollar’s weakness against several major currencies supports the notion that any rallies approaching the 98.10 resistance level in the index should be viewed as opportunities to sell.
The current context supports a strategy that leans towards sterling strength, provided the UK sidesteps any new domestic disruptions and global risk sentiment remains generally positive. Anticipated Japanese data—Tokyo core CPI projected at approximately 2.5% compared to 2.8%, unemployment estimated at around 2.6%, industrial production expected to decline by about 1.9%, and retail sales growth forecasted to decelerate to 0.9%—will influence global risk appetite when markets resume trading after the holiday. The recent data indicating a slight decline in Japanese activity, coupled with easing inflation, aligns more with a soft-landing scenario than a hard-landing event. The current environment generally favors risk-sensitive currencies such as sterling, especially when global equity benchmarks are trading close to their highs and credit spreads are kept in check. A stable macro environment diminishes the demand for USD as a safe haven and promotes ongoing engagement in higher-beta FX trends. The positioning and price behavior indicate a distinct shift from stress to consolidation. As GBP/USD approached $1.2400, market attention was sharply directed towards UK inflation and growth risks, with speculative positioning showing a bearish inclination. The prevailing conditions, with prices maintaining stability around $1.3501 within an ascending channel, indicate a reduction in structural shorts and a more balanced positioning in the market. Fast-money accounts are navigating the channel, whereas real-money investors seem more inclined to increase their exposure during dips. The alteration increases the likelihood of upward extensions if new data or central-bank messaging further undermines the dollar or supports the perspective that the BoE will maintain a tighter stance compared to its counterparts for an extended period.
The key levels for GBP/USD are clearly established. On the downside, $1.3470–$1.3480 constitutes the initial support zone, integrating a horizontal level with the lower boundary of the short-term ascending channel. Below that, the ascending 200-EMA near $1.3330 delineates the threshold between a typical correction in an uptrend and a more significant structural decline. On the upside, the recent cap at $1.3535–$1.3540 serves as the initial resistance band; a decisive break and hold above this area would indicate renewed momentum and pave the way toward $1.3580 initially. Additional increases appear more probable if DXY encounters resistance at 98.10 once more and breaks through support in the 97.70–$97.75 range, heading towards the 97.30 target suggested by the dollar’s descending channel.