GBP/USD begins 2026 within the $1.3450–$1.3490 range, bolstered mainly by the differences in central bank policies. The Federal Reserve has implemented three cuts thus far, adjusting the target range to 3.50%–3.75%. Market expectations indicate the possibility of two additional reductions by 2026. The trajectory narrows the yield differential compared to other major currencies and consistently counters additional USD appreciation. The dollar index is currently positioned between 98.20 and 98.30, confined within a narrow range and failing to produce a lasting recovery. The labor data from the US macro perspective supports a dovish bias. The most recent NFP report indicated an addition of approximately 95k jobs, falling short of expectations around 150k, which serves as a clear indication that hiring momentum is diminishing. The current FedWatch probabilities indicate approximately an 85.1% likelihood of no action in January, alongside a 14.9% chance of an additional 25 basis point reduction during that meeting. Simultaneously, the political landscape presents challenges for the USD: Trump is poised to nominate a new Fed chair as Powell’s term concludes in May, and market expectations lean towards a more dovish stance, further discounting the currency.
In contrast, the Bank of England is implementing a more measured approach to easing. The BoE made a reduction in December, bringing rates down to 3.75%, marking a three-year low. However, it contends with inflation hovering around 3.1%, in contrast to the US core PCE, which is approximately 2.8%. The inflation gap constrains the pace at which the BoE can implement cuts in comparison to the Fed. The outcome is straightforward: the policy spread bolsters GBP and maintains GBP/USD above the mid-1.34s, despite sluggish UK growth and increasing domestic unemployment. The US Dollar Index has rebounded from 97.75 and is currently consolidating within the 98.25–98.35 range, situated near a 38.2% retracement level. The 50-period moving average has stabilized, while the 200-period MA around 98.50 is functioning as a significant resistance level. With RSI positioned around 55, momentum shows a slight positive trend, yet it remains distant from being considered impulsive. A clear breakout above 98.50 would pave the way for a move towards 99.00–99.35, potentially pushing GBP/USD back toward the low 1.34s. A decline that pushes DXY below 98.25 and subsequently 98.00 would consequently open the door for GBP/USD to rise past $1.3530. Currently, the dollar finds itself in a position influenced by easing expectations and safe-haven demand, resulting in its role as a hindrance to the pair rather than a catalyst for a new trend. The influence on the GBP is based on relative strength rather than absolute measures. The Bank of England’s adjustment to 3.75% reflects a slightly dovish stance, yet it remains significantly behind the Federal Reserve’s trajectory. With inflation holding at 3.1%, the central bank finds itself limited in its actions. The growth in the UK may be subdued, yet the current policy framework continues to support GBP relative to USD. Positioning is advantageous for sterling: shorts have been squeezed as UK fiscal risk has diminished, and this short-covering is evident in GBP/USD maintaining a level above $1.3450 rather than falling back into the low 1.33s.
Projections from major banks indicate a range of $1.36–$1.40 for 2026, situated within a broader expected band of $1.35–$1.47, reflecting a positive yet measured outlook on the pair. Throughout the various feeds, GBP/USD aligns closely within the same critical range. Recent 4-hour sequences indicate the pair has rejected the $1.3530–$1.3534 range and has subsequently slid back into the $1.3450–$1.3470 zone. Current spot trades are positioned between $1.3465 and $1.3470, remaining below the recent swing high yet still within the confines of a rising channel established since late November. The market is currently not reflecting a trend reversal; instead, it is processing a robust advance from November to December and assessing whether $1.35 will establish itself as a solid support level or remain as a barrier above. On the topside, resistance is clear and distinctly outlined. The initial obstacle is the psychological level of $1.3500, which has already turned back several intraday attempts. Just above lies the three-month peak at $1.3534, reached on December 24, along with the December swing high near $1.3530.
A daily close above $1.3530–$1.3534 would indicate a reassertion of buyer dominance and support the validity of the rising channel. Looking ahead, the next structural target is the six-month high at $1.3726, with the upper channel boundary positioned around $1.3750. The range of $1.37 to $1.38 indicates a plausible upside for a first half-year extension, assuming the dollar continues to weaken. Trend indicators continue to suggest a bullish GBP/USD structure, despite a cooling in momentum. On the daily chart, the nine-day EMA is positioned significantly above the 50-day EMA, with the spot trading above both averages. The 50-day line is trending upward, indicating that the momentum established since late November remains strong. Momentum is distributed across various timeframes. One daily read indicates that RSI is at 62.76, suggesting a bullish sentiment while remaining comfortably below overbought levels, allowing for potential further upward movement. The 4-hour analysis indicates that RSI is in the low 40s, suggesting a decline in short-term upward momentum as the pair retreats from $1.3530. The presence of an ascending trend base alongside diminishing short-term momentum indicates a phase of consolidation rather than a reversal. In cross terms, GBP exhibits strength against JPY, while the appreciation against USD is more gradual, aligning with a grind-higher profile rather than a spike. Short-term trade logic centers on the $1.3430 pivot. A definitive tactical setup presents itself with a momentum break lower: a confirmed daily close beneath $1.3430 paves the way for a movement toward $1.3365, with stop placements sensibly positioned back above $1.3500. The outlined configuration presumes a short-term breakdown of the ascending channel, followed by a pullback into the 38.2% Fibonacci range. As long as the range of 1.3430–1.3468 continues to hold on a closing basis, the higher-probability approach is to treat dips as buy zones. The 100-period moving average around $1.3400, along with the pin-bar low at that level, establishes a clear reference point for tight-risk long positions targeting a move back toward $1.3530. The 20-period moving average at $1.3482 serves as a significant intraday indicator: consistent inability to regain the range of $1.3482–$1.3500 suggests potential re-tests of $1.3450–$1.3430; a sustained breakthrough above $1.3500 would pave the way towards $1.3530–$1.3534.
The outlook for GBP/USD in 2026 suggests a range between $1.35 and $1.47, with the majority of institutional predictions clustering around the $1.36 to $1.40 area. This perspective is founded on a structurally weaker USD due to ongoing Fed easing, a more gradual and limited easing trajectory from the BoE, and a sustained risk premium on the dollar stemming from US political turbulence and uncertainties surrounding Fed leadership. Concurrently, there is no illusion that the UK is in an optimal condition. Growth continues to be sluggish, unemployment is on the rise, and markets are anticipating further cuts from the BoE later this year. The aforementioned factors limit the potential for growth and suggest that a direct ascent to the upper range of the anticipated band is unlikely. The integration of all levels and macro inputs indicates a continued bullish outlook for GBP/USD. Above $1.3430–$1.3400, the rising channel, EMA configuration, and RSI profile collectively indicate that weakness should be viewed as an opportunity rather than a structural break. The appealing accumulation zone is $1.3430–$1.3365, with value extending down to $1.3285 in the event of a market overshoot. Upside reference points are established at $1.3530–$1.3534 initially, followed by $1.3726–$1.3750, and looking further ahead to 2026, the $1.40 range where major institutions are concentrated. Only a sustained move below $1.3285, and especially a slide toward $1.3010, would warrant a shift from a buy-on-dips strategy to a neutral or outright bearish stance. Until that break occurs, the data set indicates a definitive position: GBP/USD presents a buying opportunity on dips, exhibiting a strong bullish trend leading into 2026.