The GBP/USD pair is currently positioned at approximately 1.3330, moving within a tight range as market participants prepare for a significant alignment in monetary policy between the Federal Reserve and the Bank of England. The market has factored in a highly probable 25-basis-point reduction by the Fed in the upcoming week, while anticipations for a Bank of England easing cycle are also gaining strength. This unusual situation—simultaneous rate reductions on both sides of the Atlantic—has placed Cable in a state of stagnation, resisting its usual directional tendencies. Following a peak at 1.3384, the highest point since late October, GBP/USD pulled back to 1.3325, solidifying the gains achieved during November’s rally. The pair continues to demonstrate strength even as both central banks move towards a more accommodating policy stance. The UK Autumn Budget sparked initial optimism, resulting in a rise in the pound as the fiscal measures were perceived as supportive of growth. However, there is now a distinct indication that the Bank of England is gearing up for its initial rate cut since early 2024, with a 90% market probability factored in for a 0.25% decrease at the upcoming meeting. The Bank of England faces the challenge of reducing interest rates while avoiding a resurgence of inflation. The most recent CPI reading has decreased to 3.9%, a decline from 4.3% in October, with core inflation also easing to 4.4%. Wage growth has moderated to 6.2% year-over-year, representing the slowest rate observed in the past ten months. The prevailing trends provide policymakers with the justification to implement easing measures, particularly in light of the ongoing pressure on real incomes. The strength of the sterling against the dollar is consequently being moderated by increasing belief that the UK’s rate cycle has reached its zenith.
The U.S. Dollar Index remains around 98.90, marking its lowest level in five weeks, indicative of widespread anticipation regarding a shift in Federal Reserve policy. Current futures markets indicate an 89–92% probability of a 25-basis-point reduction at the FOMC meeting on December 10, adjusting the target range to 3.50%–3.75%. The Federal Reserve is currently facing challenges with a declining labor market, as evidenced by Nonfarm Payrolls increasing by just 85,000, falling short of the anticipated 150,000. Additionally, core PCE inflation has moderated to 3.2%, further supporting a dovish outlook. Jobless claims showed a significant improvement, dropping to 191,000, marking the lowest level since September 2022. However, traders have largely overlooked this positive development, viewing it as a lagging indicator, and are instead focusing on the declining trend in overall employment momentum. The delay in data reporting due to the U.S. federal shutdown has resulted in an incomplete macroeconomic picture; however, traders maintain a strong confidence that monetary easing is on the horizon. This structural dollar weakness has maintained GBP/USD close to its upper range, even with occasional pullbacks. Positioning in the options market indicates an increasing belief in a stronger pound. Market participants have built up call positions on GBP/USD at strike levels of 1.3400 and 1.3450, with expirations stretching into January 2026. The framework suggests anticipations for a breakout following the Fed’s actions, reflecting trends observed during the 2019 easing cycle, where several preemptive rate cuts led to a decline in the dollar over an extended period. The implied volatility for the December 10 window has surged to 10.8%, indicating that traders expect a significant directional shift as policy clarity comes into view.
From a technical perspective, GBP/USD is currently consolidating within a rising channel that initiated in mid-November. Support is positioned at 1.3287, bolstered by the 20-period moving average, whereas more substantial demand zones are located around 1.3250 and 1.3190, corresponding with the 50- and 200-EMAs. The RSI at 55 indicates consistent momentum, while the MACD stays above zero, reinforcing the underlying bullish sentiment. Resistance is identified at 1.3375, characterized by multiple rejection wicks indicating short-term supply. A confirmed close above that level may pave the way toward 1.3424 and 1.3470, which are the subsequent key thresholds. Sources indicate that 1.3350 has served as a technical ceiling in recent sessions. A breakout would confirm the persistence of the bullish corrective structure, bolstered by trading above the EMA50 and a supportive trendline evident on the short-term chart. Relative strength indicators approaching oversold levels indicate that momentum could soon shift back towards buyers. The upcoming 48 hours will be crucial for determining the trajectory. The postponed U.S. PCE Price Index for September is anticipated to indicate a continued deceleration to 2.8%, marking its lowest level in more than two years. A softer reading may drive GBP/USD down to 1.3400, whereas an unexpected increase could limit advances around 1.3300. The University of Michigan’s Consumer Sentiment Index, projected at 68.4, will offer an additional perspective on the strength of demand-side resilience. A drop beneath 67 would strengthen expectations for Fed easing, increasing downward pressure on the dollar. The present market environment resembles the conditions of late 2019, characterized by synchronized global easing that led to a three-month rally in GBP/USD from 1.22 to 1.35. The similarities are notable: declining U.S. job growth, easing inflation rates, and proactive measures from the central bank. This time, both the BoE and Fed are easing at the same time, which limits the impact of the relative rate differential. Instead, market participants are concentrating on relative economic strength. Given the U.K.’s fiscal expansion expected to support domestic demand, alongside indications of a slowdown in the U.S., the relative growth dynamics may continue to favor the pound against the dollar through early 2026.
Although the medium-term outlook appears positive, the short-term configuration is susceptible to risks. A bearish pin bar candle appearing on the 4-hour chart suggests a potential near-term exhaustion in the market. The overbought RSI exceeding 70 earlier this week has begun to normalize, creating space for a minor retracement prior to continuation. Failure to maintain levels above 1.3280 may lead to a test of 1.3250, whereas a drop below 1.3200 would negate the bullish scenario, bringing 1.3140 into focus as the subsequent key level. As of Friday’s London session, GBP/USD is at 1.3331, reflecting a 0.09% increase for the day. The recent 7-session decline in the U.S. Dollar Index has not completely resulted in a proportional increase in Cable strength, highlighting a cautious sentiment in anticipation of the upcoming Fed meeting. The pair continues to trade within the 1.3280–1.3380 range, looking for a fundamental catalyst to drive movement. Should the Fed affirm dovish language on December 10, GBP/USD may approach the 1.3450–1.3500 range, whereas an unexpected hawkish stance could lead to a pullback towards 1.3200. Considering the current positioning, the softening of U.S. macro data, and the Fed’s almost guaranteed rate cut, the outlook for GBP/USD continues to be bullish in the near term. Any pullbacks toward 1.3280 should be seen as opportunities for accumulation, with 1.3470 as the immediate upside target and 1.3600 as the extended resistance into Q1 2026. The market’s narrative is clear: the U.S. Dollar is losing policy support faster than the British Pound, and with traders heavily positioned for dovish confirmation, the reaction to next week’s Fed statement could define the currency’s trajectory into the new year.