GBP/USD commenced the week at approximately 1.3325 and concluded around 1.3373, navigating within a constrained range of 1.3288–1.3434. That represents approximately a +0.36% increase on a weekly basis – a steady yet not dramatic upward movement. The EUR/USD pair commenced trading close to 1.1640, subsequently rallied to 1.1762, and concluded at approximately 1.1743, reflecting a robust increase of +0.88%. The GBP/EUR cross experienced a decline, moving from approximately 1.1448 to 1.1388, reflecting a -0.52% decrease. This indicates that the euro has outperformed sterling, despite both currencies appreciating against the USD. At a deeper level, a significant structural factor is the weakening dollar: the overall USD index is concluding the year approximately 9% lower, and this change in the dollar component is precisely what propelled GBP/USD from the 1.3025 area observed on 21 November to this week’s high around 1.3438–1.3423.
GBP/USD – Federal Reserve Rate Cut, Powell’s Departure, and the U.S. Perspective on the Trade. The immediate catalyst for GBP/USD on the USD side was the Fed’s 25 bps rate cut. The cut was anticipated, yet the market’s response was surprising: rather than a typical “sell the news” scenario leading to dollar strength, institutions interpreted it as validation that the Fed is progressing further into an easing cycle. The nuance is anticipatory. Powell will no longer be in position by May 2026. Markets are pricing in the likelihood that his successor in the current U.S. administration will take a more openly dovish approach compared to the existing “cautious cut” stance. The significance of that shift lies in the fact that the comprehensive risk rally of 2020–2021, which encompassed the substantial fluctuations in GBP/USD, was fundamentally supported by extremely low-cost dollar funding. In the short term, the weaker U.S. data, including jobless claims and softer macro prints, along with the cut, has led to an upward movement in GBP/USD towards 1.34, contrary to the clean downside that many traders had anticipated. The outcome: a reduction in defensive dollar longs and a gradual increase in the pair, despite the fact that no one genuinely asserts that the UK macro narrative appears more robust than that of the U.S. at this moment. The GBP leg does not warrant any sense of complacency. The UK data indicates a downturn: GDP experienced a contraction of 0.1% month-on-month in October, and the output for the three-month period from August to October also recorded a decline of 0.1%. The current environment does not provide a foundation for assertive hawkishness from the BoE.
Current market expectations indicate a significant likelihood of a 25 basis point cut by the Bank of England on 18 December, which would reduce the Bank Rate to approximately 3.75%. The forthcoming CPI print is anticipated to be approximately 3.5% year-over-year, significantly lower than previous peaks, thereby providing the Bank of England with greater political flexibility. The decline of GBP/EUR from approximately 1.1448 to around 1.1388 occurred despite the increase in GBP/USD. The pound is benefiting from the weaker dollar trend, rather than driving it. Upon the delivery of the cut, attention swiftly shifts to guidance: should the BoE indicate a series of actions extending into early 2026, the pressure from rate differentials could effectively limit GBP/USD to below the upper 1.34–1.35 range. The EUR aspect is significant as GBP often faces challenges when the euro is favored as the anti-dollar. The ECB maintains its deposit rate at approximately 2.0% and consistently describes its policy as “in a good place.” The euro area’s growth, though modest, has demonstrated greater resilience than anticipated earlier this year. The outcome: EUR/USD has seen gains of nearly +13% year-to-date, and a robust trade-weighted euro contributes to a scenario where the euro continues to absorb dollar weakness, while the pound appears to be more of a follower. Last week’s price action clearly illustrated the movements in the market – EUR/USD increased by nearly a full percentage point, GBP/USD rose by approximately a third of that, while GBP/EUR experienced a decline. For GBP/USD, a sustained break above 1.34–1.3470 indicates that either a new wave of broad dollar selling is required or the BoE must adopt a stance that is less dovish than what the market currently anticipates. At this moment, there are no assurances for either option. GBP/USD Price Structure: Analyzing the movement from the 1.0351 capitulation low to the resistance at 1.34. From a technical perspective, GBP/USD remains within a larger recovery framework stemming from the 1.0351 extreme low recorded in 2022. The movement towards 1.3787 marked the initiation of the first significant phase.
The recent decline from 1.3787 to 1.3008 exhibits characteristics of a three-wave corrective pattern, rather than indicating the onset of a new structural downtrend. Provided that GBP/USD remains securely above approximately 1.2474, the market may consider all movements since the 1.3008 low as components of a continuing upward trend targeting 1.3787 and possibly extending towards structural resistance near 1.4248 (the vicinity of the 2021 high). The recent movement from 1.3008 to 1.3438 aligns with the bullish framework. The rejection from 1.3438 and the consistent failures within the 1.3400–1.3470 range clearly identify this zone as the next significant resistance level that must be overcome before the market can genuinely consider a move towards 1.3787 once more. The multi-source perspective aligns: one desk identifies 1.32 as the critical floor for the existing structure; another highlights 1.3286 as the pivotal level that must hold for additional upside; others designate 1.34 as a ceiling until a daily or weekly close surpasses it. From a tactical perspective, GBP/USD is currently confined within the ~1.33 support level and the ~1.34–1.3470 resistance range. A sustained break in either direction will determine if we continue the November–December rally or revert back toward 1.30.