GBP/USD is constrained. The spot has been fluctuating within the 1.3420–1.3450 range, with this week’s low approaching 1.3350 and a recent two-day high recorded at 1.3475. The price is currently positioned just below the 1.3430–1.3450 range, where multiple upper wicks have formed, indicating the presence of supply in that area. A quote of 1.1357 is noted in one source; however, the surrounding context and additional prints near 1.3430 indicate that cable is trading in the mid-1.34s, rather than the low-1.13s. The market is currently consolidating within the 1.3380–1.3340 support range and the 1.3485–1.3525 resistance zone, poised for the next macroeconomic catalyst. The unexpected inflation figures in the UK are pivotal in maintaining GBP/USD above the 1.34 mark, preventing a decline towards 1.30. The headline CPI for December registered at 3.4% year-on-year, surpassing the consensus estimate of 3.3% and increasing from 3.2% in November. Core CPI remained high at 3.2%. Producer prices are showing significant movement, with the Producer Price Index at 3.4%, while the Retail Price Index is even higher at 4.2%. The figures presented do not support the case for a robust easing cycle from the Bank of England. Despite that, most economists still anticipate the BoE will implement a cut once in the first half of 2026, relying on base effects from last year’s energy spike to drive CPI lower. The anticipated cut serves as a cap on GBP/USD increases, as market participants are unwilling to factor in a prolonged policy divergence that would benefit sterling. The outcome is characterized by a “sticky inflation, hesitant central bank” environment: sufficient pricing power to prevent a collapse in UK real yields, yet insufficient to persuade traders that elevated rates will be maintained for an extended period.
The existing tension accounts for the subdued response: inflation at 3.4% typically would drive GBP/USD significantly higher, but the pair remains only slightly above 1.34, not aggressively approaching 1.36–1.38. The market indicates that inflation has become persistent, yet the Bank of England is likely to yield in the future. The upcoming UK prints do not indicate a favorable environment for a significant rally. December retail sales are projected to decrease by 0.1% month-on-month, indicating a third consecutive decline. That would indicate that elevated borrowing costs are impacting household spending. Additionally, the S&P Global PMIs for January will indicate if the momentum in services and manufacturing is stabilizing or experiencing a downturn once more. If retail sales fall short of expectations and PMIs weaken, the market will increasingly focus on the possibility of a BoE rate cut, even with CPI at 3.4%. The 1.3485–1.3525 zone is likely to act as a significant resistance level for GBP/USD in the short term. Market participants understand that a currency’s stability cannot hinge solely on inflation; it also requires growth and consumer strength to thrive. Weak UK demand data would support the notion that the current inflation is primarily a lagged shock rather than a persistent price-pressure narrative, thereby constraining the potential appreciation of sterling. On the USD side, the macro matrix exhibits strength, yet it lacks the intensity to overpower GBP/USD. The revision of US Q3 2025 GDP to 4.4%, surpassing the expected 4.3%, reflects strong momentum fueled by exports and a diminished impact from inventories. Labour data remains robust: weekly initial jobless claims stand at 200,000, slightly higher than the previous 199,000 but significantly lower than the anticipated 212,000. Continuing claims are recorded at 1.849 million, marking the lowest level since November, indicating tight labor market conditions. In light of current conditions, the US Dollar Index has decreased approximately 0.25% to near 98.55, while markets continue to anticipate around 42 basis points of Federal Reserve easing by the end of the year, with the policy rate presently situated in the 3.50–3.75% range.
The combination of robust growth and expectations for rate cuts presents a unique scenario: it prevents the dollar from plummeting while also hindering any significant upward momentum. The current situation in GBP/USD illustrates that the USD lacks the strength to decisively breach 1.33, yet it is not weak enough to facilitate a clear breakout above 1.36 without additional catalysts. The geopolitical dynamics surrounding Greenland are a key factor influencing the recent uptick in GBP/USD. Trump’s prior warning regarding the implementation of 10% tariffs starting February 1 on imports from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland has established a distinct trade-war concern. The risk has been partially mitigated following the announcement of a framework agreement with NATO regarding Greenland, along with a clear retreat from the tariff proposals put forth in February. This de-escalation results in two effects. Initially, it enhances the appeal of European risk assets and diminishes the necessity for protective dollar inflows. Secondly, it enhances the value of sterling by alleviating direct tariff risks for UK exporters. Consequently, GBP/USD has risen to approximately 1.3450, despite the robust US GDP and employment figures. The willingness to take on risk has increased, and the premium associated with the dollar as a safe haven is diminishing. This aligns with the wider market landscape: EUR/USD has retraced slightly from 1.1770 to the 1.17 range, gold remains high and is approaching the $5,000 per ounce mark, and the DXY is maintaining its position in the high-90s rather than advancing further. The conclusion is that a weaker dollar and diminished tariff risk are providing support for GBP/USD in the range of 1.33–1.34.
On the weekly chart, GBP/USD has been undergoing prolonged consolidation since 2023. The recent price movement indicates a pullback from a resistance line that links higher highs observed between July 2023 and September 2024, currently positioned slightly above the 1.30 level. The recovery from the 1.30–1.2940 range is currently forming a possible bullish flag, which is a traditional continuation pattern following a previous upward movement. The weekly RSI remains above the 50 neutral level, indicating a persistent bullish bias instead of a potential topping structure. The critical confirmation level stands at 1.3570. A sustained hold above 1.3570 would finalize the flag formation and pave the way for a movement toward the resistance level that has been in place for over two years, located near 1.38. Surpassing 1.38, the subsequent structural target is positioned near the 2021 highs at approximately 1.42. On the downside, 1.33 serves as the critical level that safeguards the bullish outlook. A decisive move and weekly close beneath 1.33 would negate the continuation pattern, pulling GBP/USD down toward the 1.30–1.2940 range. Should the price fall below 1.2940, the analysis indicates 1.2740 as the initial support level, followed by 1.2480 as a further support point. The current medium-term risk-reward appears favorable as long as 1.33 remains intact; however, if that level is breached, the overall structure could transition into a wider range or potentially initiate a new downward movement.