GBP/USD is currently positioned at approximately 1.3510 following a two-day surge that propelled the pair past 1.3450, establishing a narrow range between 1.3470 and 1.3518, just below the resistance level. The price remains firmly above the 1.3500 level, indicating that buyers have effectively absorbed the initial spike following the Bank of England’s 25 bps reduction to 3.75%, rather than opting for aggressive profit-taking. The current behavior reflects typical post-break consolidation: candles are compressing near the upper end of the recent range, with volatility subdued by year-end liquidity. However, the pair remains steadfast above the breakout zone of 1.3450–1.3500, maintaining an upward bias as long as 1.3470 continues to draw in dip-buyers. The primary factor influencing GBP/USD is the Bank of England’s more cautious approach to easing compared to the Federal Reserve. The December reduction lowered the Bank Rate from 4.00% to 3.75%, while the communication suggested a cautious, data-driven approach moving forward. Given that the UK CPI remains at 3.2% year-on-year following a recent peak of 3.8%, the Monetary Policy Committee faces challenges in endorsing a robust easing cycle. This sentiment is mirrored in the money markets, which currently price in only one complete cut for the first half of 2026, along with approximately a fifty-fifty chance of a second cut by the end of the year. That profile represents a “hawkish cut”: nominal rates are declining, yet real yields remain elevated, and the forward curve does not indicate a swift descent toward 3.0%. For GBP, this indicates that the carry narrative remains intact, and any declines in GBP/USD towards the mid-1.34s are met with underlying demand rather than forced selling.
The interplay of inflation and growth in the UK elucidates the rationale behind the resilience of GBP, even in the wake of the cut. Headline inflation stands at 3.2%, exceeding the 2% target, while services inflation persists at elevated levels, and wage growth has shown only a gradual decline. Concurrently, the activity data indicates a softness that supports a gradual easing approach, yet it does not warrant any extreme concern. The situation compels the BoE to navigate a tight path: it needs to ease to prevent excessive tightening of the real economy, yet each 25 bps increment presents a critical decision point. While the Bank Rate remains within the 3.50%–3.75% range and inflation exceeds the target, the real policy rate continues to be positive and appealing in comparison to the US, particularly after the Fed’s cuts are fully accounted for. The market interprets this as a rationale for maintaining GBP during periods of weakness rather than capitalizing on every rally, which explains why GBP/USD is establishing a foundation above 1.3400 instead of retreating into the low-1.30s. The structural backdrop for USD appears weaker compared to GBP on the US side. The Federal Reserve has implemented a reduction of 25 basis points, adjusting the target range to approximately 3.50%–3.75%, while Core PCE is moving towards the 2.8% level. Futures indicate a strong likelihood that rates will stay steady at the January meeting, with only a slight chance of a 25 bps cut in the short term. However, the overall curve suggests a complete easing trajectory extending through 2026. The current situation limits the dollar’s movement: the DXY index hovers around 98.0, maintaining Fibonacci support close to 97.98 and struggling to convert attempts above 98.25–98.60 into lasting upward momentum. For GBP/USD, this indicates that the directional risk is now less influenced by a strong dollar and more contingent on the Fed’s confirmation that real rates will continue to decline, while the BoE remains slower and more cautious in its approach.
On the daily chart, GBP/USD shows a clear bullish structure instead of a blow-off top. The price remains firmly positioned above the ascending 100-day EMA close to 1.3335 and operates above the 20-day moving average situated around the low-1.34s. This indicates that the medium-term uptrend is preserved, and any pullbacks towards the 1.3410–1.3450 range are still considered technically sound. The daily RSI is positioned just beneath the overbought level near 70, indicating robust momentum while also signaling that pursuing further gains above 1.3550 without a retest entails short-term risk. The upper Bollinger Band near 1.3550 represents the initial significant daily resistance; the mid-band around 1.3410 serves as the primary support level for bullish positions. A daily close back below 1.3410 would indicate the initial sign of a weakening trend, suggesting a potential deeper test towards the lower band and the previous demand area around 1.3270. On the intraday 2-hour and 4-hour charts, GBP/USD is steadily advancing within a rising channel, with the price adhering to an upward-sloping trendline that originated from the late-November lows. The 50-period EMA situated between 1.3455 and 1.3480 serves as immediate dynamic support, whereas the 200-period EMA around 1.3400 to 1.3405 strengthens the overarching bullish trend. Horizontal supports are positioned at 1.3470 and 1.3410, where recent declines have drawn in buyers; each interaction has been accompanied by a rejection wick, indicating that genuine demand remains present during periods of weakness. On the upside, resistance has been focused at 1.3535 as the initial intraday barrier and 1.3550 as the range where the upper Bollinger line limits price movement. A decisive move and a close above 1.3535–1.3550 would indicate that the consolidation phase has concluded positively, paving the way for a measured advance toward 1.3600, which stands as the next rational target within the current channel structure.
The dynamics and positioning surrounding GBP/USD support a positive outlook rather than indicating a peak scenario. The movement above 1.3500 came after the unexpected “hawkish cut” from the BoE and has been maintained, as the price action indicates only minor intraday retracements and a lack of capitulation from late longs. Year-end liquidity remains limited, hindering follow-through and maintaining relatively narrow ranges. However, a significant indicator is that the pair consistently fails to hold trades below 1.3470, even after several attempts. The observed behavior suggests that quick capital is taking advantage of dips around 1.3470–1.3480 to re-establish positions in the trend, while institutional investors appear to be at ease maintaining their exposure as we approach the first week of January. They anticipate that increased market participation and the forthcoming FOMC minutes will ultimately introduce sufficient volatility to break the current range. Integrating the macroeconomic and technical aspects, the outlook for GBP/USD is positive, indicating that the pair is fundamentally a Buy rather than a Sell at this time. The divergence in policy is advantageous for GBP, as the BoE is decelerating its easing cycle while inflation remains at 3.2%. In contrast, the Fed is progressing further down the road to lower real rates. The pair is currently positioned above all significant moving averages, maintains trend support, and is consolidating just below the 1.3535–1.3550 resistance level instead of bouncing back from it. The constructive configuration remains intact as long as GBP/USD stays above the 1.3410–1.3450 support range, particularly above the 100-day EMA around 1.3335. A daily close beneath these levels would shift the outlook to neutral and pave the way for a deeper correction towards 1.3270. A confirmed break above 1.3535–1.3550 suggests potential upside toward 1.3600 in the short term, with additional medium-term gains likely if the BoE remains behind the Fed on rate cuts and data does not necessitate a more aggressive easing cycle in the UK.