GBP/USD is currently positioned within the 1.3470–1.3535 range following a two-day surge that elevated the pair to its highest level since September. The market is currently fluctuating around 1.3500 following intraday peaks close to 1.3534–1.3535. The shift is influenced more by the divergence in monetary policies than by the strength of the UK economy: the Bank of England is easing only with hesitation from 3.75%, whereas the Federal Reserve has already reduced rates by 75 basis points and is anticipated to continue easing through 2026, with the US Dollar Index remaining within the 97.70–98.10 range. The recent 25 bp reduction by the BoE has adjusted the Bank Rate to 3.75%. However, the voting outcome revealed a narrow split of 5–4, with four members of the MPC opting against any reduction. This does not represent a traditional dovish pivot; it indicates a central bank that continues to perceive price pressures as excessively elevated. Headline UK inflation stands at 3.2% year-on-year, a decrease from 3.8%, yet remains 1.2 percentage points above the 2% target. Services inflation and wage growth continue to exhibit persistence, and the communication suggests that future decisions are a “closer call,” thereby constraining the pace at which policy can be relaxed. The macroeconomic indicators from the UK show weakness, yet they are not disastrous. Third-quarter GDP recorded a growth of 0.1% quarter-on-quarter and 1.3% year-on-year, aligning perfectly with forecasts. A revision adjusted Q2 from 0.2% to 0.1%, while 2024 projections were slightly increased, maintaining the 1.3% YoY rate steady. The Bank of England’s projections continue to indicate that economic activity is expected to approach a standstill by late 2025, influenced by stricter financial conditions and the recent Budget’s impact on demand. The current environment limits the potential for GBP/USD appreciation solely due to domestic growth factors, yet it does not warrant drastic emergency rate reductions.
The external balance continues to highlight the UK’s structural weakness. The current account deficit has decreased from approximately £21.2 billion in Q2 to £12.1 billion in Q3, indicating a reduction in tail risk, although vulnerability remains present. The British pound continues to rely on external investments to bridge that deficit. Provided that the global risk appetite remains robust, the shrinking deficit presents a slight advantage. If risk sentiment deteriorates sharply, the structural shortfall may quickly come back into focus, potentially leading to a rapid repricing lower in GBP/USD, even in the absence of a change in BoE policy. The sentiment surrounding the USD leg is distinctly unfavorable. The US Dollar Index is currently positioned between 97.70 and 98.10, moving within a descending channel characterized by lower highs and lower lows. Sellers consistently protect the 98.50–98.70 range, where the 50-EMA and a declining trend line converge, while the 100-EMA around 99.10–99.20 serves as an upper barrier. The RSI is positioned between 40 and 45, indicating a lack of strong momentum rather than a state of being oversold. The primary factor influencing the situation is the anticipation that the Fed will prolong its easing cycle into 2026, despite having already implemented 75 basis points of cuts this year. While US growth appears robust, the underlying details do not provide as much support for the dollar. Real Q3 GDP came in at 4.3% annualised, surpassing the consensus estimate of 3.3% and showing an improvement from the previous figure of 3.8%. Simultaneously, the GDP Price Index increased to 3.7%, surpassing the forecast of 2.7%. Core PCE in Q3 climbed to 2.9%, up from 2.6%, while headline PCE inflation rose to 2.8%, compared to the previous 2.1%. The current readings suggest a case against hasty cuts; however, the forward-looking indicators are showing signs of weakness.
In October, Durable Goods Orders experienced a decline of 2.2%, following a 0.7% increase in September. Excluding defense orders, there was a decrease of 1.5%. Core orders, excluding transportation, saw a modest rise of only 0.2%, compared to the anticipated 0.3%. Industrial production decreased by 0.1% in October, with a slight rebound of just 0.2% in November. Additionally, the Conference Board consumer confidence index fell to 89.1, below the forecast of 91.0, after a previous upward revision to 92.9. The labour data presents a mixed picture. Initial jobless claims decreased to 214,000 from 224,000, surpassing the forecast of 223,000. However, continuing claims increased to 1.923 million from 1.885 million, and the four-week average of new claims saw a slight decline from 217,500 to 216,750. The Fed has already implemented a reduction of 75 bps, but futures continue to reflect approximately 20% probability of another cut in January and about 50% probability of an additional adjustment by March, with discussions surrounding at least two 25 bp cuts for 2026. Political pressure is evident: the US President has indicated that any future Fed chair must be prepared to lower rates even amidst robust growth, which raises concerns regarding the independence of the central bank and strengthens a structurally bearish outlook for the dollar. Risk-hedging flows are shifting away from the USD. Gold has experienced a notable increase, approaching the $4,500/oz mark, with recent peaks exceeding $4,520 and subsequent retracements stabilizing just under $4,500. Meanwhile, Bitcoin is currently positioned between $86,000 and $87,000 after its attempt to surpass $90,000 was unsuccessful. When XAU/USD experiences such a rally while DXY stays confined within the 98.50–99.20 EMA band, the dollar’s position as the leading safe haven diminishes. The prevailing conditions are conducive to high-beta and yield-supportive currencies, allowing GBP/USD to maintain elevated levels despite intermittent risk-off scenarios.
GBP/USD is currently positioned within a rising channel on the 4-hour chart, a trend that has been in place since late November. The price is fluctuating within the range of 1.3500–1.3515, positioned above a robust support zone located between 1.3420 and 1.3455. The 50-EMA ascends through approximately 1.3425–1.3470, serving as dynamic support, while the previous breakout area at 1.3455 has transformed into horizontal demand. Significant structural support is positioned near 1.3390, indicating the foundation of the recent impulsive movement and the lower boundary of the channel. On the topside, resistance is observed near 1.3545–1.3550 and then at 1.3595–1.3600, with a potential extension toward 1.3650 if DXY remains under pressure. The RSI on the 4-hour chart remains within the 60–70 range, indicating robust trend momentum without a forthcoming blow-off top. Short-term risk is influenced more by liquidity and positioning than by fundamental factors. As we approach Christmas and New Year, trading volumes diminish, heightening the likelihood of false breakouts around 1.35, accompanied by temporary spikes through 1.3534–1.3535, which are often followed by swift reversals. Recent upward movement can be attributed to position adjustments: reductions in dollar longs and underweight-GBP accounts pursuing performance as the pair approaches 10–12-week highs. The broader uptrend remains intact unless GBP/USD decisively closes below 1.3390, followed by a decline towards 1.3310, where the 200-EMA and previous congestion zone align. The narrative surrounding policy is of utmost importance. With the Bank Rate at 3.75% and expectations for the BoE to reduce it to approximately 3.25% through two more 25 bp cuts, while the Fed has already lowered rates by 75 bps and is anticipated to continue, the previous rate advantage that bolstered the USD has diminished. The 5–4 vote by the BoE against further easing highlights that the UK central bank is positioned more hawkishly compared to the Fed, albeit slightly.
Potential upside risks to the USD may arise from another instance of 4.3%-type US GDP, with core PCE remaining close to 2.9% and confidence stabilizing. This scenario could enable the Fed to maintain its stance against further cuts. In that scenario, GBP/USD is expected to face resistance below 1.3600–1.3650 and may retrace into the 1.3350–1.3430 range. In the UK, a further widening of the current account towards or exceeding £21.2 billion, or a GDP figure falling short of the 0.1% QoQ / 1.3% YoY range, would highlight GBP’s underlying vulnerabilities. This scenario would be particularly pronounced if it coincides with a general risk-off sentiment that channels investments into USD cash and Treasuries. With GBP/USD trading around 1.3500, recent highs at 1.3518, support at 1.3420–1.3455 and 1.3390, resistance in the 1.3545–1.3600–1.3650 band, Bank Rate at 3.75% on a 5–4 split, UK inflation at 3.2%, UK GDP at 0.1% QoQ and 1.3% YoY, the current account deficit narrowed to £12.1 billion, the Fed 75 bps into an easing cycle, DXY pinned near 97.7–98.0, US GDP at 4.3% with PCE near 2.8–2.9%, and GBP/USD locked in an orderly rising channel, the balance of evidence suggests a preference for further upside rather than a reversal. The outlook is optimistic: GBP/USD presents a buying opportunity on dips around 1.3430–1.3470, with initial upside targets at 1.3545, followed by 1.3595–1.3600, and possibly reaching 1.3650 if the dollar continues to weaken. A daily close below approximately 1.3355, followed by a breach under 1.3310, would negate this perspective and shift the pair from Buy to neutral; until that happens, the path of least resistance for GBP/USD continues to be upward, rather than downward.