The primary factor keeping GBP/USD around 1.3380 is the change in expectations regarding the Federal Reserve, rather than any domestic news from the UK. US inflation remains persistent: the headline CPI is currently at 2.7% year-on-year, consistent with the previous month, whereas the PPI has increased to approximately 3.0% from 2.8%. The labor market contributes to the narrative, as the most recent Nonfarm Payrolls report indicates approximately 215,000 new jobs, exceeding expectations of around 180,000, while the unemployment rate stands at 4.4%, slightly below the Fed’s forecast of 4.5%. Weekly jobless claims decreased from 207,000 to 198,000, indicating a reduction in the number of Americans seeking benefits. The combination of persistent inflation and robust employment figures has compelled the market to reduce its expectations regarding the extent of easing anticipated from the Fed in 2026. Where traders previously anticipated approximately 60 basis points of cuts, they now project nearer to 44 basis points for the year. The recent repricing has driven the US Dollar Index upward once more, approaching the 99.40–99.50 range, while the significant resistance area remains around 100.00–100.20. In that environment, every effort by GBP/USD to rise above 1.34 encounters a stronger dollar. The situation in the UK presents a mixed outlook, yet it is not dire for GBP. Output for November 2025 exceeded expectations, providing the British economy with a modest upside surprise. The Pound has demonstrated stronger performance compared to the EUR on certain crosses. Nevertheless, expectations regarding rates take precedence. The money markets continue to indicate expectations of at least two 25 basis point cuts from the Bank of England in 2026, with implied probabilities approaching 90% for an initial adjustment by May. While the UK data remains stable, the Bank of England is perceived as a central bank likely to implement easing measures, in contrast to the Federal Reserve, which is being adjusted towards fewer and more delayed cuts. The relative policy trajectory is more significant than the growth surprise, explaining why GBP may appreciate against the Euro while not making gains against the US Dollar. The recent movement in GBP/USD is clear-cut. In the most recent North American session, the pair reached a peak close to 1.3413 before retreating to approximately 1.3380. Spot trading is currently positioned just below the 200-day simple moving average at 1.3405, which serves as a significant trend filter for numerous market participants. The pair has been testing the same support level multiple times, with a four-week low around 1.3360 and a wider support range between roughly 1.3353 and 1.3371. Every rebound from that zone has faced selling pressure as soon as the 1.3400–1.3410 range is approached. The market currently views 1.34 as a ceiling, with the 1.3350–1.3370 area serving as a near-term floor. This situation results in GBP/USD being confined within a narrow range beneath its 200-day average.
Technically, GBP/USD has transitioned from a constructive bias to a more cautious stance. Since the lows of late November, the pair has adhered to a rising support line that characterized the previous recovery phase. The trendline broke on 6 January, indicating a loss of control among buyers. Since that break, the price has been steadily declining within a falling wedge, a compression pattern that holds bullish potential, contingent upon a genuine breakout. Critical downside levels are positioned just beneath the current spot. Immediate support is identified within the 1.3353–1.3371 range. Further down, the 50-day SMA around 1.3334 serves as the next technical target, followed by a more significant former swing level at 1.3215, the high from 13 November. Deeper structural trendline support is observed in the 1.3100–1.3150 zone. On the upside, the sequence is equally clear: first, GBP/USD needs to reclaim 1.3400 and close decisively above the 200-day SMA at 1.3405. Subsequently, it needs to surpass resistance near 1.3450, thereby reopening the trajectory towards the significant 1.3500 level. As long as the pair remains unable to maintain trading above 1.3405 and 1.3450, the market will persist in viewing this wedge as a consolidation phase within a dollar-supportive context, rather than signaling a definitive bullish reversal. The movement of GBP/USD at these levels indicates the positioning of larger market participants. Consistent inability to maintain levels above 1.3400, especially in light of robust US economic indicators, encourages macro and systematic investors to capitalize on strength through selling rather than pursuing it. As the DXY approaches 99.50, with the spot around 1.3380 and the 200-day SMA positioned at 1.3405, the pair presents a clear technical framework for short positions. Short positions initiated above 1.3380 should have stop-loss orders set beyond 1.3450, a resistance threshold that, if surpassed, could challenge the prevailing bearish outlook. Regarding volatility, institutional commentary aligns with this perspective: there is still selling pressure on the upside of GBP/USD, and options structures are leaning towards downside protection or positioning beneath 1.3300 instead of making bold bets on the upside. The lack of a significant volatility spike indicates that the market is not anticipating a drastic sterling squeeze at this time; rather, it appears to be at ease with the theme of policy divergence.
The forthcoming critical developments in GBP/USD will be driven by the macroeconomic calendar rather than solely by technical analysis. The upcoming week in the UK will center on key indicators such as the labor market, inflation, and retail sales. An inflation report exceeding expectations would directly challenge a market that anticipates two Bank of England rate cuts in 2026. If UK CPI exceeds expectations, anticipated cuts may be delayed, leading to a surge in front-end gilt yields and a significant upward movement in GBP/USD, potentially breaking through 1.3405 and reaching towards 1.3450–1.3500. On the US front, key data to monitor encompasses housing figures and, crucially, the Core PCE index, which is the Federal Reserve’s favored gauge of inflation. If Core PCE is weaker than the narrative suggested by 2.7% CPI and 3.0% PPI, the approximately 44 bps of anticipated Fed cuts for 2026 may increase once more. This would draw DXY away from the 99.50 range and alleviate some of the downward pressure on GBP/USD. The pair is positioned at a technically precarious juncture as both economies release data that has the potential to alter rate expectations. This scenario is precisely where foreign exchange can exhibit an exaggerated response to individual data releases.
Considering the robust US data, the expectations for easing from the BoE, the movements of DXY, the wedge formation, and the positioning of moving averages, the analysis indicates a distinct perspective: GBP/USD exhibits a tactically bearish bias as it remains below the 200-day SMA. Around 1.3380, with the pair unable to sustain trade above 1.3405, rallies into the 1.3400–1.3450 band remain appealing for short positions, targeting first the 1.3330–1.3340 region near the 50-day SMA and then the 1.3215 area if dollar strength continues and DXY ultimately breaks the 100.00 barrier. A daily close above 1.3450 would neutralize the bearish outlook and bring 1.3500+ back into consideration, particularly if that break is supported by a significant UK CPI surprise or a weaker-than-anticipated US Core PCE reading. Until one of those catalysts materializes and price demonstrates it by maintaining a position above 1.3450, GBP/USD should be approached as a Sell, with a short-term bearish outlook supported by the policy divergence and validated by the technical framework.