GBP/USD is currently positioned within the 1.3430–1.3490 range, having successfully breached the significant 1.3450 resistance that had persisted for several days. Intraday peaks are noted around 1.3483–1.3486, with market participants evidently focusing on the psychological level of 1.3500. The pair is experiencing upward pressure from two converging influences. On the UK side, the latest labour figures indicate a gradually cooling economy rather than a collapse: the ILO jobless rate holds steady at 5.1% for the three months ending in November, slightly above expectations of 5.0%. This marks the highest rate since early 2021, yet it remains well within manageable limits. In December, jobless claims increased by 17.9K, indicating a slight increase in slack rather than a significant shift. Wage growth is moderating yet remains high: regular pay (excluding bonuses) is at 4.5% on a three-month year-on-year basis, slightly down from 4.6%, while total pay, including bonuses, registers at 4.7%, surpassing the 4.6% forecast. The current situation allows the Bank of England to postpone significant reductions as inflation decreases, thereby maintaining the appeal of UK yields in comparison to a decelerating Europe. In the context of GBP/USD, it appears that political factors are currently exerting a greater negative influence on the dollar than macroeconomic indicators. The Dollar Index has declined below 99.00, currently trading at approximately 98.837, following a breach of the 99.065 support level, which now serves as resistance. The RSI on DXY has dropped below 30, indicating an oversold dollar and allowing for potential bounces; however, the overall trend remains downward as long as it remains below 99.065, with support levels at 98.667, 98.409, 98.151, and 97.863. The catalyst for this “Sell America” phase is clear: Trump’s choice to impose 10% tariffs starting 1 February on imports from Denmark, Sweden, France, Germany, the Netherlands, Finland, the UK, and Norway – escalating to 25% from 1 June – is tied to his efforts to acquire Greenland. The emergence of that threat has reignited discussions surrounding a potential EU–US trade war, leading to cautionary statements, including the IMF chief’s admonition for Europe to “get your act together.” For GBP/USD, this indicates that the pound is appreciating not due to the UK’s favorable outlook, but rather because the USD is being adjusted downward in response to political and trade uncertainties, even as the domestic labor market remains robust enough to postpone Federal Reserve rate cuts.
The specifics of the UK labor market are crucial for GBP/USD as they influence the pace at which the BoE can adjust its stance. The 5.1% unemployment rate, which is marginally above the 5.0% forecast and represents the highest level since early 2021, indicates that the jobs market has transitioned beyond its most constrained phase. The increase of 17.9K in jobless claims for December indicates a trend towards incremental slack rather than a significant downturn. In terms of wages, regular pay at 4.5% and total pay at 4.7% are significantly below the post-pandemic highs, yet they still exceed the levels desired by a central bank aiming for a 2% inflation target. The combination is unconventional yet straightforward: the BoE can refrain from further hikes, but it lacks a pressing reason to significantly cut rates. Markets are positioned to anticipate rate cuts beginning later and progressing gradually, placing greater importance on upcoming data like UK CPI and retail sales. For GBP/USD, this profile presents a mildly supportive outlook: it removes outright recession and emergency easing from consideration, positioning the pound more favorably compared to currencies associated with weaker growth and heightened easing expectations. The insights from institutions align with that risk profile. BoE Governor Bailey has clearly identified geopolitical uncertainty as a significant contributor to financial stability and cautioned that risks to Federal Reserve independence possess “substantial potential spillovers” to the UK. The message indicates that traders should be aware that the BoE is monitoring developments in Washington alongside those in Westminster, a crucial consideration given that tariff-related politics significantly influence USD fluctuations. A UK that is carefully guided by data, featuring wages in the 4.5–4.7% range and unemployment slightly exceeding projections, supports the GBP, standing in contrast to a U.S. policy environment influenced by tariff concerns and disputes regarding the Fed.
The USD component of GBP/USD is increasingly influenced by geopolitical risks and policy expectations rather than traditional macroeconomic indicators. The labor market in the U.S. continues to exhibit sufficient strength, leading markets to adjust their expectations regarding the timing of Federal Reserve cuts. Rather than anticipating reductions as soon as January and April, traders are now pricing in the first significant cut for June, with the possibility of another in September. In theory, that should provide support for the dollar. Currently, the DXY is positioned around 98.837, remaining beneath the previously established 99.065 support level and the ascending channel that had previously encompassed earlier upward movements. The underlying factor is the tariff shock. Trump’s 10% tariff threat on a wide range of European imports starting 1 February, increasing to 25% by summer, alters the discussion from “strong U.S. growth and high yields” to “increasing policy risk and trade conflict”. From a technical perspective, the DXY has completed a rising sequence and is currently exhibiting a bearish bias. Key support levels are identified at 98.667, 98.409, 98.151, and 97.863, while 99.065 has transitioned into a resistance level following the breakdown. The 50-period and 200-period moving averages are showing signs of flattening, indicating a decrease in upward momentum. Given that the RSI is below 30, there may be potential for short-term rebounds; however, the prevailing risk leans towards a weaker USD unless there is a de-escalation in tariff discussions or an unexpected positive shift in U.S. economic data that could help restore confidence. The current setup indicates potential for additional gains in GBP/USD, while also cautioning that a significant rebound of the dollar from oversold conditions might lead to swift corrections at levels such as 1.3500, 1.3561, or 1.3611.
The price movement in GBP/USD during the past week illustrates the shift in positioning. On 13 January, executing a short position from the resistance level near 1.3486 resulted in a successful trade as the market demonstrated a rejection of that zone and moved downward. The recent movement aligns with a range-trading perspective, utilizing 1.3486 as the upper boundary and the low-1.33s as the optimal entry point for purchases. Since that time, the structure has undergone changes. The pair encountered demand at consecutive support levels – 1.3332, 1.3402, 1.3432 – which were specifically identified as potential long entry points by short-term traders anticipating bullish reversals on the hourly chart. The observed dips drew in buyers rather than pushing prices further down, indicating a shift towards a more favorable outlook. The pivotal moment occurred when GBP/USD successfully broke above the 1.3450 level and the descending trendline that had constrained each upward movement. Following the breach of that level, the pair advanced to the range of 1.3483–1.3486, while intraday prints remained consolidated below the 1.3500 round figure. At current levels around 1.3480–1.3490, the previous range top at 1.3450 has shifted to serve as initial support rather than resistance. The observed shift in behavior, where sellers are unable to maintain positions at previous levels and buyers are actively supporting pullbacks, is indicative of a transition from a sideways market to a trending one. This reinforces the notion that GBP/USD is currently experiencing a bullish phase rather than merely fluctuating within a confined range. The technical configuration observed on the 4-hour and hourly charts reinforces the bullish outlook while simultaneously indicating the potential for a short-term halt. The GBP/USD pair is currently positioned above both the short-term and long-term moving averages. The 50-period moving average on the 4-hour chart is positioned near 1.3425, serving as a pivotal point and dynamic support level. As long as the pair remains above 1.3425, buyers maintain their dominance; a clear breach below that level would pave the way toward 1.3400 and subsequently the previous weekly lows near 1.3340. On the topside, immediate resistance is positioned at 1.3500, succeeded by levels at 1.3531, 1.3561, and ultimately 1.3611. These levels are identified through previous reaction highs and Fibonacci projections utilized by intraday desks.
Momentum indicators appear to be extended. The RSI on the 4-hour chart is positioned above 70, suggesting an overbought market and increasing the likelihood of a corrective pullback or sideways consolidation prior to any sustained movement beyond 1.3500. Earlier in the week, RSI levels around 60 indicated a developing uptrend; the current extension demonstrates an acceleration influenced by the tariff shock and the breach of 1.3450. The hourly chart will reveal classic price-action reversal behavior that traders should monitor: long wicks, pin bars, dojis, or engulfing candles forming around significant levels such as 1.3432, 1.3402, and 1.3332 for potential long positions, while 1.3486, 1.3503, and 1.3531 serve as key points for tactical shorts or profit-taking opportunities. Current short-term trading strategies in the market outline a distinct progression of levels for GBP/USD. On the long side, dip buyers are monitoring 1.3432, 1.3402, and 1.3332 as key levels to re-enter the trend when the price displays a clear bullish reversal candle on the H1 chart. Standard risk management practices include placing a stop loss one pip beneath the local swing low, adjusting the stop to break-even after achieving a profit of 25 pips, taking half of the position off at that initial +25 pip milestone, and allowing the remaining portion to pursue higher targets. On the short side, only aggressive scalpers are entering against the trend, seeking bearish reversal patterns near 1.3486, 1.3503, or 1.3531. The reasoning is straightforward: at those levels, RSI exceeds 70, the pair is stretched beyond trendlines, and any adverse news regarding tariffs or UK data could prompt swift profit-taking. Stops for those tactical shorts are positioned just above the local swing high, employing the same 25-pip partial-take-profit and stop-to-break-even strategy. The underlying observation is that the current market structure exhibits asymmetry: a greater number of participants are inclined to purchase during dips rather than sell during rallies. However, the significant overbought condition suggests that new buyers are more interested in waiting for pullbacks toward 1.3430–1.3400 instead of pursuing breakouts above 1.3500.