The GBP/USD pair has entered a distinctly positive territory, oscillating throughout the day between 1.3520 and 1.3560 after reaching a new three-month peak at 1.3562 during early Asian trading and subsequently surging again towards 1.3567 later in the session. The market has moved past the 1.3500 level, trading confidently above it, which aligns with expectations when buyers dominate the scene. The previous three-month resistance level of 1.3520–1.3530 has now transitioned into intraday support, as the price consistently holds that range following each minor decline. The pattern observed since mid-December illustrates a clear sequence of higher lows and higher highs. The recent breakthrough past 1.3525 and 1.3550 indicates that GBP/USD has shifted from range trading to a true breakout phase, despite the current encounter with a more substantial resistance zone between 1.3560 and 1.3600. The daily GBP/USD chart reveals a strong momentum profile, with the 14-day Relative Strength Index positioned at approximately 69.3, just shy of the overbought level of 70. The analysis aligns with the current price action: upward momentum remains present, yet the likelihood of a pause or minor retracement is increasing as each new peak contributes additional exuberance to the trend. On shorter timeframes, intraday ranges of approximately 40–50 pips between 1.3520 and 1.3560 indicate consistent buying activity rather than chaotic short-covering.
However, the presence of an extended RSI and multiple unsuccessful attempts to maintain levels above 1.3560–1.3570 suggests that momentum is becoming increasingly costly. The market continues to trend upwards; however, those pursuing GBP/USD beyond 1.3560 are entering into overextended conditions and relying on a diminishing risk-reward ratio unless the pair can decisively surpass 1.3600. The trend and moving average alignment clearly support the Pound’s position. On the daily chart, GBP/USD is positioned above a rising 9-day exponential moving average near 1.3496, exceeding the 50-day EMA around 1.3375, and surpassing the 200-day simple moving average clustered close to 1.3385, with the 100-day SMA just under that at 1.3369. Short-term averages are positioned above the medium-term indicators, with all showing an upward slope, reflecting a classic bullish setup. The price is currently aligned with an upward trendline established from the mid-December lows, which now intersects near 1.3400, providing structural support below the current level. Previous resistance levels have been transformed in succession: 1.3473 served as a significant range limit late last year and is now included in a support area alongside 1.3500 and 1.3520–1.3530. Examining the chart closely, the eight-month low near 1.3010 represents a critical threshold that could challenge the prevailing medium-term bullish outlook. Provided that GBP/USD maintains a solid position above the 1.33–1.34 range and continues to align with the 50- and 200-day moving averages, the trajectory appears to favor upward movement. The overall environment remains favorable for the Pound relative to the Dollar. The US Dollar Index is currently positioned in the 98.2–98.6 range following a second consecutive daily decline, having retreated from resistance levels near 98.85 and now resting just above technical support around 98.15. The driver is not geopolitics; markets have largely diminished the impact of the latest US-Venezuela headlines, assessing that the situation does not warrant a sustained shift towards safety in the USD. The primary challenge arises from the data and the policy narrative. US manufacturing faces significant challenges, as indicated by the ISM Manufacturing PMI dropping to 47.9 in December. This marks the third consecutive month of contraction and represents the lowest reading since October. Services continue to expand, albeit at a slower pace, as indicated by the Services PMI which has eased to 52.5. Additionally, the Composite index has slipped to 52.7, reflecting modest declines from November.
The interplay of sub-50 manufacturing figures and a decline in composite growth supports the narrative that the US economy is experiencing a cooling trend as we approach 2026. On the policy front, the communication from the Federal Reserve has shifted away from a hawkish stance. An influential policymaker characterizes the present position as approximately neutral, highlighting the increasing risks of unemployment while inflation continues to decline. Another explicitly states that the central bank ought to be ready to reduce policy rates by approximately 100 basis points in 2026, depending on the data that comes in. The combination of factors is leading to a slight decrease in US yields and diminishing the Dollar’s carry advantage, especially in comparison to currencies from central banks that are more hesitant to implement easing measures. In the UK, the most recent Services PMI stands at approximately 51.4, a slight increase from the prior figure of 51.3, indicating a secure position within expansionary territory. Significantly, survey details reveal that input costs for service providers have risen at the quickest rate in seven months, underscoring the notion that domestic inflationary pressures remain present. This is significant for GBP, as it limits the Bank of England’s ability to implement substantial rate cuts; market participants need to acknowledge the possibility that UK policy may remain tighter for an extended period compared to US policy, particularly if services inflation remains persistent. The interplay of a weaker USD alongside a cautious Bank of England creates a macro environment that typically sustains GBP/USD above the 1.3500 level.
From a level perspective, GBP/USD is positioned within a concentrated area where both parties have established distinct boundaries. On the downside, immediate support begins around 1.3530–1.3520, the previous breakout zone, followed by a decline to the significant level at 1.3500. Slightly below, 1.3496 (the 9-day EMA) and 1.3473 (a prior range boundary that produced profitable reversals in late December) establish the initial significant demand zone for those looking to buy on dips. Underneath, the ascending trendline near 1.3400 coincides with the 50-day EMA at 1.3375 and the 200-day SMA at 1.3385, creating a broader support zone within the 1.3370–1.3400 range. A sustained break below this region would indicate that the current bullish momentum in GBP/USD is weakening, suggesting a potential retest of lower levels like 1.3369 or even 1.3010 could be in play. On the upper side, resistance is closely packed. The initial intraday resistance levels are positioned around 1.3561 and 1.3567, where multiple attempts have faced rejection. Above those levels, 1.3580–1.3587 establishes a short-term supply zone just beneath the psychological threshold of 1.3600. Achieving a daily close above 1.3600 would pave the path to the previous six-month peak at 1.3726, subsequently targeting 1.3788, marking the highest point for GBP/USD since October 2021.
The range from 1.3726 to 1.3788 is where medium-term participants will evaluate if the Pound is becoming over-extended against the Dollar over a multi-month timeframe. Currently, the market is focused on the task of determining if it can transform the range of 1.3560–1.3600 from a ceiling into a new floor. The technical structure of the Dollar delineates the potential limits for GBP/USD in the short term. The US Dollar Index is positioned at approximately 98.26, maintaining support close to 98.15 at the lower boundary of an ascending channel. Resistance is identified above the current level at 98.50, followed by 98.85, and ultimately at 99.07, which represents the approximate upper boundary of that channel. Provided the index stays constrained beneath 98.85–99.07, the environment aligns with a gradually weaker USD, allowing GBP/USD the potential to continue advancing into the 1.36+ range during declines in Dollar sentiment. However, if the Dollar Index bounces decisively from 98.15 and breaks above 98.85–99.07, the setup changes: such a move would tighten global financial conditions, pull capital back into the Dollar, and make it much harder for GBP/USD to hold above 1.3500. The situation is evident: A Dollar that remains below 99.0 supports a positive outlook for the pair; however, a sustained break above 99.0 would indicate that the ongoing Pound rally may be at risk.