GBP/USD attracted buyers just below 1.3400 at the close of the previous week, subsequently rebounding above 1.3450 as the dollar experienced a decline triggered by a specific event: legal proceedings against Fed Chair Jerome Powell, which directly impacted the perception of Fed independence. The subpoenas issued by the Department of Justice regarding building renovation testimony represent more than just a legal formality – Powell characterized them as “pretexts” and as a challenge to the independence of the central bank. Markets interpreted that as political interference intended to compel lower rates. The prevailing pressure typically diminishes confidence in the USD, as evidenced by the price action: rather than capitalizing on geopolitical tensions, the dollar declined, enabling GBP/USD to recover from the 1.34 level into the 1.3450–1.3475 range. The most recent US CPI report for December indicated that headline prices increased by 0.3% month-over-month and 2.7% year-over-year, remaining consistent with November’s figures. Core CPI increased by 0.2% for the month and decelerated to 2.6% on a year-over-year basis compared to the prior 2.7%. The interplay of these factors is essential for GBP/USD: inflation is not plummeting, yet it is gradually approaching the Fed’s comfort zone. Current money market expectations indicate approximately 50 basis points of Federal Reserve rate cuts anticipated by the conclusion of 2026. The data set lacks the strength to compel rate hikes back into the curve, while also not being weak enough to instigate panic easing. The overall impact indicates that the dollar has forfeited its macroeconomic justification for an upward movement, particularly with the Powell subpoenas looming in the background. This illustrates why GBP/USD remains around 1.3450, as the political discount on the USD balances out the inflation figure of 2.7% for US CPI. Discussion surrounding the subpoenas highlights a narrative of “sell America”: concerns that Trump may undermine the independence of the Federal Reserve to advocate for lower interest rates. Analysts caution that if this perception persists, it creates structural downside pressure on the USD. However, the bond market has not completely embraced that narrative at this point. Treasury futures have shown stability instead of a downturn, indicating that investors continue to believe the Fed will uphold its policy stance and that Powell is expected to maintain a significant role even after his term as chair concludes. The prevailing tension maintains GBP/USD within a range, rather than allowing for a straightforward upward movement. While political risks are unfavorable for the dollar, the rates market is hesitant to fully account for a total erosion of Fed credibility.
The data flow in the UK is limited in the near term. November GDP is projected to remain unchanged at 0.0% month-on-month following a contraction of -0.1% in October. While stagnation is preferable to a double-dip contraction, it fails to provide sterling with a robust macroeconomic advantage. Today lacks any significant UK data; attention is directed towards Thursday’s GDP, alongside the US PPI and Retail Sales also being relevant. Currently, GBP/USD is influenced more by the dynamics of the dollar rather than the growth narrative of the UK. The pound’s stability is not a reflection of UK strength; rather, it is maintaining its position as the USD contends with political challenges and a rates market that has largely anticipated the tightening cycle. Weekly performance tables indicate that GBP has outperformed the yen by approximately 0.9% and has recorded slight gains against EUR and CAD. That matters: GBP/USD is influenced not only by a weak USD; sterling is generally strong in G10, supported by the belief that the Bank of England will maintain a tighter stance for an extended period compared to many counterparts. This context enables GBP/USD to maintain support in the range of 1.3390–1.3400 and rebound swiftly when the USD encounters unique challenges like the Powell subpoenas. The cross is not being propelled higher solely by speculative noise; it is supported by a true relative-strength narrative for GBP in contrast to a politically turbulent USD. A sustained break below 1.3400 would reveal the 100-day SMA around 1.3369; however, buyers have intervened before reaching that level. On the upside, the 1.35 level represents a key psychological resistance and the upper boundary of the recent consolidation phase. Each effort to break through 1.3500 has faltered, indicating that the bulls lack the strength to drive a trend leg towards 1.3567 without a new macro catalyst. During intraday trading, GBP/USD has recently approached 1.3475, a level identified as “strong resistance” by a financial institution. This movement aligns with overbought signals observed on relative strength indicators. Simultaneously, the price is attempting to overcome the adverse influence of the 50-day EMA and validate a complete recovery in the near-term outlook. The framework is clear: the prevailing short-term trend remains positive, characterized by higher lows established since late November. The overbought reading indicates a potential consolidation or minor pullback from 1.3475–1.3500, rather than an immediate trend reversal, provided the pair remains above the 1.3390–1.3400 support level and the 200-day SMA. On the 4-hour chart, GBP/USD is positioned near 1.3460–1.3465 following a rebound from a rising trendline situated around 1.3390. The trendline delineates the present bullish channel.
The 200-EMA sits near 1.3400, acting as a structural floor, while the 50-EMA around 1.3470 is capping the very short-term upside. Recent candles exhibit extended lower wicks in the range of 1.3390–1.3420, indicating a preference for dip-buying over distribution. The market shows a tendency to build positions in GBP/USD around the lower end of the range, while reducing exposure as the price nears the 1.3475–1.3500 level. This exemplifies typical range behavior with an upward bias. Recent price action reveals that intraday tactical levels are both tight and explicit. On the downside, buyers have consistently entered the market around 1.3448, 1.3420, and 1.3391. The three layers create a demand zone: each attempt to penetrate that range has resulted in bullish reversal patterns on the hourly chart. Potential upward movement, with supply levels identified at 1.3486, 1.3503, and 1.3531. Short-term sellers have been retreating from GBP/USD in this area, employing tight stops positioned above local swing highs. This establishes a clear zone of contention: bulls protect the range of 1.3390–1.3420, while bears capitalize on upward movements into the range of 1.3486–1.3531. Until a major data shock breaks one of these walls, the pair is likely to oscillate inside this corridor. The US CPI release (0.3% m/m, 2.7% y/y; core 0.2% m/m, 2.6% y/y) has already been factored into the price. The upcoming catalysts for GBP/USD include the UK November GDP figures and the US PPI and Retail Sales data releases. Should the UK GDP confirm a figure of 0.0% following a previous -0.1%, it bolsters the case that the UK is sidestepping a more severe economic decline, thereby reinforcing the GBP at its present levels. A weaker figure would render the 1.3390–1.3400 support level more vulnerable. In the US, weaker PPI and subdued Retail Sales would strengthen the market’s perception that the Fed may implement cuts in 2026, putting downward pressure on the USD and supporting a potential move above 1.3500. Stronger data would lead to a reversal, bringing GBP/USD closer to the 1.34 region. Market sentiment regarding GBP/USD indicates a presence of cautious bulls rather than euphoric buyers. The interplay of political influence on the Federal Reserve, a slightly favorable performance relative to the UK, and well-established technical support has fostered a sentiment that can be described as “cautiously optimistic” regarding GBP/USD.
Market participants are refraining from pursuing upward momentum beyond 1.35, as overbought indicators and the absence of a clear macroeconomic driver suggest that a sharp breakout is unlikely. The strategy suggests purchasing on pullbacks within the range of 1.3390–1.3420, with profit-taking occurring between 1.3500–1.3560. This behavior aligns with the overarching perspective that the dollar is at risk yet not in freefall, while sterling remains stable but is not experiencing an explosive upward trend. Analysis on GBP/USD: Consider purchasing on pullbacks, maintaining a positive outlook as long as it remains above 1.3390. Considering the overall data – GBP/USD maintaining support in the 1.3390–1.3400 range, currently trading around 1.3450–1.3475, facing resistance near 1.3500, with US CPI at 2.7% and core CPI at 2.6%, the dollar index hovering near 99, alongside political pressures impacting Fed credibility – the risk assessment appears to favor the pound. Bias: Buy, with a preference to accumulate GBP/USD on pullbacks into the 1.3390–1.3420 area, targeting 1.3500 first, then 1.3560 and potentially 1.3700 if UK data cooperates and US politics keep the USD under pressure. The bullish scenario is negated with a daily close beneath approximately 1.3340 and the 200-day area; above this threshold, the pair continues to present a buy-on-dips opportunity, rather than a short position.