GBP/USD is confined within a narrow range, with the price hovering between approximately 1.3390 and 1.3520, facing challenges in maintaining levels above 1.3500. The pair has been fluctuating between 1.3430 and 1.3470, encountering resistance near the 1.3490 to 1.3500 area while consistently attracting buyers just above 1.3390. On the daily chart, the January 13 high at 1.3494 and the psychological 1.3500 level establish the initial resistance, followed by 1.3567 from January 6 and then 1.3600 as the subsequent targets for potential upward movement if a breakout proves sustainable. On the downside, 1.3400 serves as the immediate pivot, supported by the 200-day moving average near 1.3392 and the low from January 12 at 1.3375. Provided that GBP/USD remains above 1.3390–1.3400 on a closing basis, the price action indicates a consolidation phase with a modest upward bias rather than a shift towards a downward trend. The US inflation data serve as a crucial foundation for the USD aspect of GBP/USD. Headline CPI for December is at 2.7% year-on-year, remaining steady from November and aligning perfectly with consensus. Meanwhile, core CPI increased by 0.2% month-on-month, now at 2.6% year-on-year, slightly below the anticipated 2.7%. The 2.6% core reading is slightly below expectations, yet it does not indicate a level of weakness that would compel the Federal Reserve to implement early or significant cuts. The DXY’s response illustrates this: the index experienced an initial dip due to the unexpected core downside but subsequently reversed, stabilizing around the 99.00 level and adhering to resistance close to 99.26. The overall scenario indicates that the dollar has transitioned from a strong bullish trend but continues to find support during pullbacks, as inflation is moderating rather than plummeting. For GBP/USD, this indicates a market stance that is not inclined to sell USD aggressively below the 1.34–1.35 range unless the data significantly deteriorates.
The data on producer prices and demand reinforces the same narrative. Headline US PPI has increased to 3.0% year-on-year from 2.8%, while core PPI stands at 3.0% compared to 2.9% previously, with both figures surpassing the 2.7% consensus. Simultaneously, US retail sales increased by 0.6% month-on-month following a previous decline of –0.1%, surpassing the anticipated 0.4% and indicating that US consumers continue to engage in spending activities. The current figures of 2.7% headline CPI, 2.6% core CPI, 3.0% PPI, and 0.6% retail sales provide a rationale for a patient Federal Reserve and bolster US yields. Current futures indicate a 95% likelihood that the Fed will maintain rates at their current level in January, with expectations of approximately 52 basis points in total cuts by the end of the year, suggesting Fed funds will be around 3.23%. The current trajectory appears insufficient for a significant dollar capitulation, which explains the consistent selling pressure on GBP/USD as it nears the 1.3500–1.3520 range instead of breaking through and gaining momentum. The political risk premium serves as the element that prevents the USD from consistently trending upward. The investigation into Jerome Powell’s earlier statements regarding the Fed’s renovation initiative, the public confrontation between Powell and the White House, along with the ongoing pressure on the independence of the Fed, have all impacted the DXY in response to recent headlines. Powell has clearly articulated that the allegations are merely pretexts for targeting a central bank that determines rates “based on our best assessment of what will serve the public, rather than following the preferences of the President.” Simultaneously, Fed officials such as Austan Goolsbee, Neel Kashkari, and Ana Paulson are underscoring the significance of central bank independence while indicating that modest cuts are probable later in the year, contingent on the accuracy of forecasts. The dollar index has exhibited volatility around the 99.00 level, with the weekly chart indicating a defense of higher-low support and a resistance point near 100.22. In the case of GBP/USD, it indicates that each political shock provides a temporary boost to sterling; however, the fundamental framework continues to support the dollar, provided that US data and yields remain robust.
In the UK context, the narrative surrounding the GBP is not influencing the daily movements significantly, yet it does limit potential gains. The Bank of England has already reduced its policy rate to 3.75%, and money markets are anticipating an additional 25-basis-point cut by mid-2026, with close to 50 basis points of easing expected by December. Some analysts perceive potential for fewer cuts if UK data stabilizes, which could provide mild support for sterling later in the year. Currently, the comparative policy position continues to weigh on GBP/USD. The BoE appears to be approaching the easing phase more so than the Fed, with Deputy Governor Ramsden and external member Taylor adopting a sufficiently dovish stance that leads markets to anticipate further normalization downward instead of a return to rate hikes. Strategists suggest that GBP/USD should be considered a sell on any rallies approaching the 1.35–1.36 range, unless there is a significant underperformance in US data. The upcoming UK GDP data on Thursday will play a crucial role in determining if markets can begin to unwind the approximately 50 basis points of Bank of England cuts that are currently priced in. Global politics are introducing volatility and price discrepancies across assets, failing to establish a consistent trend in GBP/USD. Protests in Iran, threats of US military action in support of demonstrators, and discussions from the US President regarding 25% tariffs on countries trading with Iran are contributing to an increase in the geopolitical risk premium. The recent developments have contributed to an increase in crude prices, with WTI surpassing 60.50 dollars per barrel and targeting the 66.00 area. Additionally, this has propelled metals to unprecedented levels: gold has reached new highs above 4,600 dollars an ounce, while silver is experiencing a significant upward movement. Under typical circumstances, this combination would provide the USD with a more pronounced safe-haven advantage; however, the ongoing Fed-independence situation diminishes some of that demand. The outcome indicates a cross-asset acknowledgment of heightened risk, while DXY remains confined within support levels around 98.80–99.00 and resistance levels between 99.26–100.22. For GBP/USD, this indicates the absence of a clear safe-haven or risk-on trade; rather, the pair is functioning as a relative monetary-policy and political spread within narrow technical limits.
The daily GBP/USD chart indicates a neutral to slightly positive outlook, rather than a definitive trend in either direction. The price remains positioned above the 200-day moving average at approximately 1.3392, establishing it as a crucial structural reference for medium-term traders. The 1.3390–1.3400 zone has consistently drawn in buyers during each test, whereas efforts to surpass the 1.3494–1.3500 range have not succeeded in producing sustained momentum. The Relative Strength Index on the daily time frame remains near the 50 line, indicating a lack of extreme momentum conditions. If GBP/USD manages to close above 1.3494 and subsequently 1.3520, the potential for upward movement re-emerges toward 1.3567 and 1.3600, with a further target approaching 1.3800 later in the year, contingent on the BoE being less dovish than currently anticipated. On the other hand, a sustained daily close below 1.3390, coupled with a break of the 1.3375 low, would redirect attention to the 50-day moving average near 1.3305 and indicate a downside break of the range.