The GBP/USD pair concluded the year in the range of 1.3436–1.3455, following an intraday decline to approximately 1.3426. It ended approximately 0.2% lower on New Year’s Eve, yet recorded an overall increase of about 8% throughout 2025. The GBP/EUR cross remained around 1.1461, indicating that the strength of Sterling was largely influenced by the performance of the US Dollar rather than a significant outperformance by the UK itself. The concluding session was characterized by year-end position adjustments and diminished liquidity, as traders reduced risk and shifted back into the USD, resulting in GBP/USD retreating from its recent peaks without any new UK data catalyst. The US Dollar Index DXY concluded the year in the range of 98.25–98.28, approaching a recent high of 98.44 yet remaining approximately 2% lower than the November peak of 100.40. Additionally, it has experienced a decline of nearly 10% year over year, marking its most significant annual downturn in nearly eight years. The shift indicates a change from a robust dollar environment to a more accommodative phase, with the Federal Reserve reducing rates to a range of 3.50–3.75%. Weekly US jobless claims at 199K versus 219K expected and 215K prior indicate that the labor market remains resilient, which constrains the extent and pace of any decline in the USD; however, the overarching trend suggests a weaker outlook. On the chart, DXY is positioned within a rising channel, with support located just below 98.00 and around 97.75. Resistance is found near 98.36–98.74, along with the 200-day EMA around 98.60. This indicates that any sustained movement above that zone could temporarily limit GBP/USD, while a clear break below 98.00 would open the door for further downside for the Dollar and support additional upside for Cable. Sterling’s ceiling is determined by domestic weakness rather than insufficient support from the Dollar.
The Bank of England has reduced the Bank Rate by 25 basis points to approximately 3.75% and indicated that inflation is expected to decrease to around 3% in Q1 2026, moving closer to 2% by Q2 2026. Markets are reflecting a significant likelihood of about 88% for an additional 25 basis point cut. The UK unemployment rate has risen to approximately 5.0–5.1%, and job vacancies have decreased for six consecutive quarters, indicating a cooling labour market. The recent budget has resulted in increased tax burdens and social security contributions, placing pressure on both employers and households. This situation is dampening domestic demand and hindering the GBP from performing as a typical high carry currency, despite GBP/USD trading above 1.34. In the absence of significant UK data releases as the year concludes, there was effectively nothing domestic to counterbalance those structural challenges when global risk appetite diminished. The differing policies of the Federal Reserve and the Bank of England will significantly influence the trajectory of the GBP/USD curve in 2026. The Fed has already reduced rates to approximately 3.50–3.75%, and market expectations indicate further easing that may bring the fed funds rate nearer to 3.00% in the first half of the year, which would further diminish the Dollar’s yield support. The BoE, beginning at approximately 3.75–4.00%, is anticipated to gradually reduce rates to around 3.00–3.25% by late 2026, with certain scenarios suggesting a drop to 2.75% should UK growth decline further. The combination suggests a bullish outlook for GBP/USD in early 2026, given the quicker compression of US yields; however, this advantage diminishes as the Bank of England intensifies its rate cuts. Street projections are concentrated within a wide range of 1.30–1.47 for the year, with a central focus around the 1.36–1.40 area. This suggests potential for Sterling appreciation, though it does not indicate a consistently upward trajectory.
On the daily chart, GBP/USD concluded the year close to the 50-day EMA at 1.3460 and slightly above the 200-day EMA at 1.3410, which now serve as immediate trend support. Recent price action indicates a rejection near the upper channel in the 1.3500–1.3530 range, while momentum indicators like the RSI are declining from higher levels toward the lower and mid ranges, suggesting a decrease in upward strength rather than a definitive reversal. On the downside, 1.3410 is the initial level to monitor, succeeded by 1.3345 and further support in the range of 1.3250–1.3165, aligning with the 52-week moving average. On the upside, near-term resistance is positioned at 1.3494, with a broader ceiling in the 1.3500–1.3535 range and longer-term objectives at 1.3789 and subsequently 1.4250 should the rally continue. The pair is currently constrained by solid support in the low 1.34s and ongoing resistance in the mid 1.35s, awaiting a decisive break from either side. The flow data and behavior leading into the final sessions of 2025 indicate a crowded yet delicate long Sterling narrative. At year-end, portfolio rebalancing favored the USD, as asset managers closed outperforming positions and rebuilt cash buffers. This naturally created demand for the Greenback, pushing GBP/USD off intraday highs despite the broader bearish Dollar narrative. The Pound exhibits a notable sensitivity to changes in the global risk environment; it tends to appreciate when equity and credit markets are robust, while it struggles when investors seek safer assets. The interplay of a 10% annual decline in DXY, an 8% yearly increase in GBP/USD, and persistently high speculative long positioning indicates that Sterling is susceptible to sudden pullbacks in response to unexpected developments from the Fed, any letdowns in UK data, or global risk-off scenarios, particularly as the pair hovers near the upper end of its recent range. Institutional forecasts for GBP/USD in 2026 vary significantly, indicating a true level of uncertainty. Cautious analysts project year-end levels around 1.35–1.36, suggesting that Sterling will primarily follow EUR/USD trends while facing limitations due to sluggish UK growth and concerns regarding fiscal credibility.
More balanced forecasts indicate GBP/USD is expected to rise toward 1.39–1.40 in the first half, bolstered by additional Fed cuts and Dollar repricing, before retreating into the mid 1.30s as the BoE adopts a more aggressive easing stance and policy spreads tighten. The most optimistic scenarios project a move toward 1.47 by year end, with optional spikes toward 1.50 if US data deteriorates sharply and the Fed is forced to deliver deeper easing while UK growth stabilises. All of these perspectives converge on a common observation: they recognize GBP/USD trading well above the 1.30–1.32 support level set in 2025, yet they differ in their assessments of the sustainability of any movement beyond 1.40. With GBP/USD positioned between 1.3436 and 1.3455, the USD has declined approximately 10% on the DXY, while Fed rates hover around 3.50–3.75%. Meanwhile, BoE rates are in the range of 3.75–4.00%, and UK unemployment stands at approximately 5.0–5.1%. The prevailing evidence suggests a preference for a hold stance, leaning towards tactical range trading rather than making a bold directional prediction. The macro backdrop indicates a slight strengthening of Sterling in early 2026; however, significant overhead resistance between 1.35–1.38, coupled with the persistent impact of sluggish UK growth, suggests that classifying Cable as a straightforward long position at this time may not be prudent. The most logical strategy with these figures is to consider 1.33–1.34 as a favorable buying range, 1.37–1.38 as a point to reduce positions or take advantage of strength, while maintaining a medium-term outlook of GBP/USD fluctuating within a 1.32–1.38 range unless there are significant changes in Fed policy, BoE indications, or labor market data that deviate from the current path.