GBP/USD is currently fluctuating within a narrow yet assertive range of 1.3490–1.3535, having reversed a three-week downturn from the early-January peak close to 1.3568 and rebounded from the demand zone situated between 1.3340–1.3355. The pair is currently approaching a significant resistance zone at 1.3500–1.3570, where previous sellers have successfully upheld the downtrend. The macro backdrop presents an asymmetric scenario: the US continues to exhibit a 4.4% annualized GDP and a 2.8% year-over-year core PCE, yet the dollar index remains constrained between 98.25 and 98.45. Meanwhile, the UK is delivering positive surprises in both consumption and PMIs. The disparity between the robustness of US data and the underperformance of the USD is precisely the reason GBP/USD is currently probing the upper limits of its recent range instead of retreating towards 1.33. The latest upward movement in GBP/USD is initiated by the UK consumer sector. December Retail Sales exceeded expectations, contradicting the narrative that “UK demand is rolling over.” Headline sales increased by 0.4% month-over-month following a 0.1% decline in November, surpassing forecasts that anticipated another -0.1% decrease. The core measure excluding auto fuel increased by 0.3% month-over-month, following a revised decline of -0.4%, surpassing expectations of a -0.2% decrease. On an annual basis, the headline figure has increased by approximately 2.5% year-over-year, while the core measure stands at around 3.1% year-over-year, both significantly surpassing consensus expectations. That is not a fragile consumer; that is a resilient one. The foreign exchange response indicates that every decline towards 1.3340–1.3400 has been met with strong buying interest, and the market is currently factoring in a UK economy that is showing signs of strain but remains resilient.
Future-oriented activity data supports the same conclusion. The UK flash Composite PMI surged from approximately 51.4 to around 53.9, indicating that both services and manufacturing are in expansion territory. For GBP, this is more significant than the GDP headlines: it indicates that momentum heading into 2026 is not deteriorating. A robust services PMI, in particular, aligns with the positive retail performance and challenges immediate recession predictions. The interplay of sustained consumer spending and rising PMIs is precisely what empowers the pound to aim for the 1.35 mark once more, rather than retreating into the lower 1.33 range. On paper, the US macro environment appears to support a bullish outlook for the USD. The GDP for Q3 2025 was reported at approximately 4.4% on an annualized basis, with core PCE inflation currently at about 2.8% year-over-year, reflecting a monthly change of 0.2%. Weekly initial jobless claims are currently around 200k, marginally higher than the ~199k reported the previous week and below the consensus estimate of 212k. The combination of robust growth, moderate yet persistent inflation, and a tight labor market typically fosters a stronger dollar and a more aggressive stance from the Federal Reserve. Currently, the DXY has entered a short-term down channel, fluctuating between 98.25 and 98.45 rather than progressing upwards toward 100. The market evidently shows no inclination to offer a premium for USD based solely on macroeconomic factors. The underlying factor is not the data; it’s the institutional risk. The ongoing struggle regarding Fed leadership, the legal challenges facing Governor Cook, and the growing belief that monetary policy may become increasingly politicized all contribute to a “discount” in the dollar. Investors acknowledge that the fundamentals support a smaller number of cuts than what is currently reflected in pricing; however, they are reluctant to make significant adjustments while the Fed’s independence remains a prominent topic in the news. That is why robust figures such as 4.4% GDP and 2.8% core PCE are not resulting in a straightforward USD rally – and why GBP/USD is trading close to 1.35 with DXY under 99.
The current US political developments maintain a risk premium on the dollar. The Greenland tariff episode, the ongoing discussions regarding NATO and Europe, and the Supreme Court hearing concerning Cook have all demonstrated the rapidity with which the White House can introduce uncertainty into the markets. When Trump retreated from the idea of using force regarding Greenland and put a hold on the 10% tariffs affecting several EU nations, the dollar experienced a short-lived relief rally. The initial bounce dissipated swiftly as investors redirected their attention to the Federal Reserve’s stance and ongoing governance issues. The current environment is favorable for GBP/USD. The UK may not exemplify political stability, yet from a market standpoint, the BoE appears significantly more predictable compared to a Fed entangled in domestic political disputes. While the perception of institutional risk in the US remains high, any rallies in the dollar are expected to be met with selling pressure, particularly against currencies supported by favorable data surprises. What is evident in the market movements is that GBP/USD is experiencing an upward trend due to positive economic indicators from the UK, whereas the USD’s strength from robust US data is limited rather than sustained. GBP/USD has transitioned from a clear three-week decline into a promising bullish formation. On the weekly chart, the pair experienced a rally of approximately 4.3% from the low in November to the early-year high close to 1.3568. Following this, it underwent a three-week correction before locating support at the 38.2% retracement level of that movement around 1.3355. From that level, cable has printed an outside-week reversal higher, indicating that significant capital has entered the market aggressively during the pullback. The level at 1.3355 has emerged as the critical structural support for the ongoing trend.
Resistance, however, is a tangible factor. The recent recovery has returned the price to a range between 1.3500 and 1.3502, coinciding with the January high-day close and the convergence of a descending pitchfork parallel. A weekly close above this range would reveal 1.3570–1.3573, corresponding with the 78.6% retracement of the previous September decline, followed by 1.3648, the high-week close from 2025 where the upper channel boundary is currently positioned. Furthermore, there is potential to reach the 1.3749 area, which aligns with the 2022 peak; however, this necessitates a decisive break and sustained position above 1.3640–1.3650. On the 4H chart, the micro-structure supports the bullish sentiment. The price is currently positioned above the 50-EMA, with the 20 and 100-period moving averages having crossed in a bullish manner. GBP/USD is fluctuating within the range of 1.3490 to 1.3535, while the RSI is approaching 60, suggesting a favorable momentum that is not yet overextended. Immediate support is established at 1.3445, with further backing in the 1.3400 area where the 200-EMA and previous demand align. The intraday levels establish the key points of contention for short-term traders, while the more significant structural benchmark continues to be 1.3355 on the weekly chart. The DXY profile illustrates the potential for sterling to gain traction despite robust US economic data. On the 2-hour chart, the index has declined from approximately 99.50 to the 98.25–98.45 range. The price recently approached a rising trendline around 98.25, where buyers showed resilience, indicated by long lower wicks. However, the short-term structure is characterized by a descending channel, while the broader uptrend remains intact. Critical support levels are positioned at 98.25–98.00, followed by 97.77. Resistance is positioned at 98.72 and 98.87, aligning with the 38.2% and 50% Fibonacci retracements of the most recent downward movement, while the 200-EMA serves as a dynamic resistance level.
The RSI on DXY has rebounded from levels close to oversold, indicating a deceleration in downside momentum; however, the index has yet to recover any significant resistance levels. For GBP/USD, this indicates that any dips are promptly countered by dollar selling, provided that DXY remains constrained below the 98.70–98.90 range. Unless DXY can reclaim those retracement levels and advance toward 99.50 once more, the dollar headwind persists, and GBP/USD continues to exhibit a bullish bias. Considering both macroeconomic factors and technical analysis, the prevailing evidence continues to support GBP over USD at present levels. However, it is advisable to adopt a strategy of “buying dips rather than chasing every breakout.” The ideal risk-reward area for new long positions is found on pullbacks within the 1.3440–1.3450 range, while more assertive buyers may target the lower 1.3400–1.3355 zone. The region integrates intraday moving average support alongside the significant weekly retracement that initiated the outside-week reversal. Provided that GBP/USD maintains a closing position above 1.3355, the uptrend observed from November to January continues to be valid, with any declines into that range likely representing temporary pauses rather than the initiation of a reversal. On the topside, the initial viable profit zone is positioned around 1.3560–1.3570, coinciding with the 78.6% retracement and previous supply levels. Should the pair decisively surpass that zone and finish a week above 1.3500–1.3502, it paves the way toward 1.3640–1.3650, with the possibility of reaching the 1.3740–1.3750 area if Federal Reserve messaging remains unclear and UK data consistently exceeds forecasts. In that scenario, traders have the opportunity to adjust their stops upward and allow the trend to continue its course. Currently, with the spot price hovering around 1.35, the emphasis is on strategically entering positions during dips rather than pursuing every upward movement.
The optimistic outlook for GBP/USD is not without its vulnerabilities. Several catalysts have the potential to change the narrative rapidly. Initially, a gentle series of UK data – particularly a turnaround in retail performance or a significant decline in services PMI – would challenge the notion that the UK consumer can sustain growth, and would steer markets towards a more pronounced easing trajectory from the BoE. Secondly, a distinctly hawkish shift from the Fed, with Powell firmly opposing rate-cut expectations to reaffirm independence and credibility, could provide DXY the impetus to surpass the 98.90–99.50 range, thereby pressuring GBP/USD downward. The critical threshold stands at 1.3355. A decisive break and close below that level would invalidate the November rally structure, exposing the 52-week moving average near 1.3268, followed by 1.3223. At that point, the pattern would transition from “higher lows and higher highs” to “failed top and deeper correction,” indicating that GBP/USD would shift from a buy-the-dip market to a sell-the-rally market. Until that occurs, the interplay of UK data resilience, DXY weakness in the range of 98.25–98.45, and robust technical support below the market maintains the prevailing bias. Overall, the present setup supports a bullish or buy-on-dips approach for GBP/USD, with 1.3355 serving as the critical invalidation point and 1.3560–1.3650 representing the near-to-medium-term target range, provided that UK fundamentals continue to exceed expectations and US policy uncertainty remains a limiting factor for the dollar.