GBP/USD at approximately 1.3420 indicates that the dollar is currently dominant, rather than sterling. The pair encountered resistance above 1.3567, establishing a definitive short-term peak at that level, subsequently declining towards the 1.34 mark as US data strengthened the demand for USD. ISM services exceeded expectations, with new orders and prices paid remaining high, reinforcing persistent services inflation. ADP private employment exceeded expectations. In a recent Nonfarm Payrolls report, 50,000 jobs were added, falling short of the 60,000 expected. However, the underlying details were favorable for the dollar: unemployment decreased to 4.4% from 4.5%, and average hourly earnings rose to 3.8% year-on-year, surpassing the anticipated 3.6%. Another significant jobs report indicated the addition of 210,000 new jobs, reinforcing the notion that labor demand continues to be robust. The interplay of those factors compelled a reassessment of the Federal Reserve’s trajectory. The likelihood of a March cut has decreased significantly from over 70% to around 40%. The anticipated 25 basis point adjustment to a target range of 3.50%–3.75% at the upcoming meeting is now characterized as a “hawkish cut.” This marks the third reduction this year, yet the guidance suggests a pause in early 2026 instead of an easing cycle. Elevated US yields combined with a more gradual Fed approach are precisely the conditions to avoid for those holding long positions in GBP/USD around 1.35.
On the UK side, the configuration is nearly the opposite. Headline inflation has moderated to approximately 2.5%, marginally exceeding the Bank of England’s 2.0% target, as growth continues to be subdued and the labor market shows signs of weakening. Current market expectations indicate an approximately 88% probability of a 25 basis point reduction at the upcoming Bank of England meeting, as investors anticipate a more measured and timely approach from the Bank compared to the Federal Reserve. The current fiscal environment is challenging: increased tax obligations following the autumn budget continue to strain UK disposable income, supporting the perspective that domestic demand in the UK is likely to remain subdued. The current policy mix, with the Fed potentially lowering rates to 3.50%–3.75% and then showing caution, contrasts with the BoE facing pressure to ease in a delicate economic environment. This scenario inherently supports the USD relative to the GBP. Observations reveal a clear trend: even in the absence of significant UK developments last week, GBP/USD declined from above 1.35 to the 1.34 range, largely influenced by US news, with sterling seemingly taking a backseat. UK assets have the potential to appreciate in equities; however, the currency serves as the release valve.
The FTSE 100 closing above 10,000 for the first time indicates the perceived value in the market. A depreciated pound compared to previous levels enhances foreign earnings upon conversion, leading to an increase in index points despite a lackluster domestic outlook. Yields clarify the shift: investors are willing to “exchange” a 4% government bond for a 7% dividend flow from an insurance stock. Entities such as London Stock Exchange Group and Melrose Industries exhibit potential for appreciation – in one instance, experts estimate an approximate 40% undervaluation, while in another, the PEG ratio stands at 0.9 with forward earnings of 16.2x compared to 2.7 for Rolls-Royce. That is equity support, not currency support. The robust FTSE at 10,000 alongside GBP/USD hovering around 1.34 reinforces the established trend: international investors favor UK assets, yet they opt to hold the cash flows while maintaining a cautious stance on the currency. The dollar’s overall performance reinforces the downward pressure on GBP/USD. The US Dollar Index demonstrated strong demand at a significant Fibonacci level close to 97.94, formed an ascending triangle from the lows observed during Christmas, and subsequently broke through the resistance range of 98.85–99.00. The breakout creates an opportunity to approach the 100.00–100.22 supply zone. As long as DXY remains above 98.85, the USD has both technical and macro support to maintain its strength, which limits any potential recovery in GBP/USD beyond the mid-1.35s.
Cross-asset signals are aligning. Gold is currently trading at approximately 4,400 dollars, with the measured move from its ascending triangle indicating a target of around 4,900 dollars. This price level is notably high, especially in light of a stronger USD and increasing US yields, suggesting a heightened demand for hedges and a tendency towards risk aversion. Silver is poised for a potential sustained breakout above 80 dollars, with 70 serving as a support level, indicating heightened levels of fear in the market. Crypto reflects a similar narrative: Bitcoin is facing challenges in maintaining its position below the 90,000 dollar mark as ETF outflows increase, indicating a market shift away from the most speculative areas. In that environment, high-beta currencies such as GBP typically underperform against a “defensive” USD, making GBP/USD a more favorable short on bounces rather than an opportunity to buy on weakness. On the daily chart, GBP/USD established a distinct short-term peak at 1.3567. Subsequently, the pair fell beneath its 100-day moving average, as the 20- and 50-day moving averages declined and entered a bearish configuration. The price is currently positioned near the 1.3400 demand zone. The market has previously dipped below 1.3400 and subsequently rebounded to approximately 1.3420, indicating that buyers are attempting to support the initial test of this level, though lacking the momentum for a significant turnaround. Below 1.3400, several support levels align. The range of 1.3360–1.3375 has been highlighted multiple times, with the 55-day EMA positioned nearly at the midpoint around 1.3366. A broader range at 1.3355–1.3371 coincides with Fibonacci support and is positioned slightly above the 200-day moving average near 1.3350. While spot remains below 1.3567 and the 100-day average, any advance into the 1.3500–1.3567 range appears corrective within a downward trend, with the likelihood leaning towards a straightforward test of 1.3360–1.3350 instead of a rebound above 1.36.
Taking a broader view, the 1.3787 peak reached in 2025 continues to serve as the primary medium-term reference point. The price movement observed from that juncture appears to be a corrective phase within the larger recovery from 1.3051, rather than indicative of a new long-term bullish trend for GBP/USD. The recent surge to 1.3567 and subsequent inability to maintain that level has resulted in an incomplete corrective structure. Should the 1.3366 EMA and the 1.3360–1.3350 support level break decisively, the ongoing decline is likely to evolve into the next phase of that correction. In that scenario, the next significant point of interest is the 1.3008 support level, which has served as a crucial floor in the overall pattern and aligns with prior swing lows. Additionally, the 38.2% retracement of the 1.0351–1.3787 advance is positioned around 1.2474. Provided that GBP/USD remains above 1.2474, the recovery following 1.0351 can still be regarded as intact, even if the pair experiences a multi-figure correction. The long-term outlook for sterling appears challenging: a sustainable trend reversal would require a break and weekly close above the 1.4248–1.4480 resistance zone, aligning with the 38.2% retracement of the significant 2.1161–1.0351 decline. Given the current position of the Fed–BoE policy gap, those levels are significantly distant from the existing 1.34–1.35 reality. The outlook for GBP/USD appears to have a constructive trajectory; however, it presently seems to represent a lower-probability scenario. Analysts indicate that the overnight breach of 1.3275–1.3280 – the level where the 200-day simple moving average and the 38.2% retracement of the September–November decline are positioned – served as the initial “go” signal for GBP bulls. Provided that the breakout remains intact and is not completely reversed, the framework continues to support a fib-ladder movement to the upside.
Consistent trading above the 50% retracement level at 1.3365 indicates a potential recovery towards the 1.3400 mark. If buyers can successfully push a close above the 61.8% retracement in the 1.3455–1.3460 range, it paves the way to the 1.3500 psychological level and a potential retest of the 1.3567 peak. In this situation, the primary downside levels are evident: 1.3300 as the initial point, followed by the breakout zone of 1.3280–1.3275, then 1.3225, and finally the significant level at 1.3200. A decisive break below 1.3200 would undermine the positive outlook and shift control back to sellers aiming for 1.3145–1.3140 and subsequently sub-1.3100 levels. Currently, the price is positioned nearer to the lower segment of that structure, indicating that the market is evaluating if 1.3275–1.3280 can genuinely serve as a long-term foundation or if it was merely a fleeting breach. The weekly GBP/USD forecast aligns with this tension as indicated by broader FX coverage. The pound experienced an upward movement earlier this week but has since “turned sour” in the past few days, as the 1.35 level has shown to be a significant barrier. Experts currently identify 1.35 as the upper limit for potential gains and 1.34 as the threshold whose breach would trigger a further decline. If the spot declines and finishes below 1.34, momentum traders will likely set their sights on the 1.32 region as the next clear objective. A decisive breakthrough at 1.36 would be necessary to reinstate genuine upward momentum and transition the dialogue from “sell rallies” to “buy dips.” Considering the current US macroeconomic environment and the Federal Reserve’s stance, the most favorable scenario for the pound in the short term appears to be a volatile consolidation within the range of approximately 1.32 to 1.36. Within this range, 1.34 to 1.35 may serve as the fluctuating midpoint. However, the likelihood leans more towards a test of the lower end of this range rather than the upper end.