The US Dollar Index is currently positioned within the 98.50–98.65 range, forming an ascending triangle pattern. Support levels are identified near 98.50 and 98.15, while resistance is concentrated between 98.85 and 99.07. The current structure indicates that the Dollar has established a support level, yet there hasn’t been a clear breakout to the upside. This situation allows for GBP/USD to remain supported during dips instead of experiencing a significant decline. This week, GBP stands out as one of the stronger G10 currencies, appreciating approximately 0.17% against USD, 0.48% against EUR, and around 0.71% against CHF, while trailing only behind high-beta currencies like AUD and CAD. The movement of the cross appears to be influenced more by the market’s readiness to diminish the Dollar within the 98–99 DXY range, rather than by any inherent weakness in the UK economy. As long as DXY remains constrained below 99.00, GBP/USD has the potential to move higher above 1.34–1.35 instead of transitioning into a complete bearish trend.
Recent US data presents a mixed picture that aligns with a range-to-slightly-higher GBP/USD outlook, rather than indicating a straightforward USD squeeze. ISM Services PMI increased from 52.6 to 54.4, surpassing the 52.3 consensus. The Employment component rose from 48.9 to 52.0, while Prices Paid decreased from 65.4 to 64.3. This indicates a continuing growth in the services sector, albeit with a reduction in price pressures. On the labor front, JOLTS job openings decreased from 7.449 million to 7.146 million, while ADP Employment reported an increase of approximately 41,000 compared to the anticipated 47,000, following a previous decline of 32,000. Forward expectations are positioned at ADP ≈ 50K, ISM Services >52, and NFP ≈ 55–60K, indicating a labor market that is cooling but not in a state of collapse. The communication from the Fed aligns with this uncertainty: Miran advocates for significant reductions in 2026, while Kashkari cautions that unemployment may “pop” higher, and Barkin emphasizes that adjustments to rates must remain firmly grounded in data. The current pricing for Fed funds indicates approximately 82.8% likelihood of no adjustments in January, which limits the potential increase in yields and maintains a subdued nature for DXY rallies. In the case of GBP/USD, the current market conditions indicate that buyers are inclined to enter on dips above the 1.3415–1.3450 support cluster, whereas any rapid increases in the Dollar prompted by isolated data points are typically met with swift selling.
In the UK context, the economic calendar is limited, resulting in GBP/USD functioning primarily as a straightforward USD and risk-sentiment trade. The absence of a new macroeconomic shock in the UK supports a positive medium-term outlook for GBP. This is reflected in Sterling’s outperformance against EUR, CHF, and JPY on the weekly performance heat map, even with some intraday pullbacks. In the Eurozone, the HICP shift from -0.3% m/m to +0.2% m/m in December alleviates the immediate deflation concerns, yet it does not prompt a significant hawkish repricing by the ECB. For GBP/USD, the conclusion is straightforward: neither UK nor Eurozone data possesses sufficient strength to propel Sterling independently; price movements continue to be influenced by the US data trends and the overall global risk environment. The key levels around 1.3450–1.3500 respond directly to US releases such as ISM and NFP, rather than to influences from London or Frankfurt. The current risk tone indicates a preference for a mildly risk-off stance instead of complete risk aversion. The VIX has increased by approximately 2%, indicating a rising demand for hedging in US equities; however, a capitulation move is absent. Historically, GBP shows a positive correlation with global equities, which accounts for the recent risk-off sentiment that led to GBP/USD retreating from intraday highs near 1.3567 and 1.3517 towards the 1.3486–1.3510 range. However, the selling appears to be measured and orderly, rather than a chaotic decline in Sterling. Simultaneously, geopolitical factors – such as developments in Venezuela and oil-related news – have failed to provide the traditional safe-haven support for the Dollar. Markets interpreted Trump’s actions regarding Venezuela as negative for oil and slightly disinflationary, rather than a catalyst to hastily invest in USD. The net result indicates a slight increase in risk premia, which limits the upside potential in GBP/USD. However, the USD lacks sufficient safe-haven appeal to push below the 1.3415–1.3450 support range.
The weekly FX performance matrix highlights that GBP continues to be a net winner: it appreciates against USD, EUR, JPY, CHF, and even shows strength against CAD, while only trailing behind the leading high-beta outperformers such as AUD. The relative strength of GBP/USD is significant as it indicates that the pair’s rally is not solely driven by a weak Dollar; there is authentic demand for GBP as a carry-and-risk proxy, especially while the Bank of England is perceived to be cutting rates later and less aggressively compared to the Fed. This explains the ability of GBP/USD to maintain a position just above 1.35, even in the face of unexpectedly strong US data. Additionally, it highlights why pullbacks toward 1.3450–1.3415 draw in buyers rather than resulting in a direct decline back to 1.32–1.33. In practical terms, this flow picture suggests a preference for buying on dips rather than shorting rallies, particularly as long as the cross remains above the critical higher-low at 1.3414–1.3415. The current trading range for GBP/USD is confined to 1.3486–1.3510, following earlier peaks around 1.3567 and 1.3517. The price action surrounding the 1.3500 level illustrates the market’s response: when US data exceeds forecasts (ISM at 54.4), Cable either stalls or wicks above, ultimately closing near 1.35; conversely, when the Dollar weakens prior to releases, the pair breaks through and consolidates above 1.35. The observed pattern indicates that 1.3500 serves as a short-term value pivot rather than a structural peak. Sellers are engaged in the 1.3530–1.3565 range – particularly following the spike to 1.3567 – yet every dip thus far has adhered to the higher-low structure established since mid-December. As long as the pair maintains its position above 1.3450, the market indicates that any declines into the mid-1.34s present opportunities to re-enter long positions rather than signaling a trend reversal.
December has exhibited a pattern of ascending peaks and troughs. The recent short-term pullback is evident through consecutive soft bearish daily candles. However, momentum, indicated by the RSI, has transitioned from a strong bullish stance to a neutral position, rather than shifting to an outright bearish trend. The key levels are evident: on the downside, initial support is at 1.3500, followed by 1.3475–1.3450, and then the significant higher-low base around 1.3414–1.3415. A break and daily close below 1.3415 would pave the way toward 1.3400 and the 200-day SMA around 1.3379. Below that level, the December low at 1.3179 emerges as the next structural target. On the upside, the initial resistance zone is located at 1.3530–1.3565, where previous supply has limited recent gains; beyond that, buyers will target 1.3600 and subsequently higher extension levels if US data proves to be significantly unfavorable for the Dollar. The current structure remains bullish as long as it stays above 1.3415, neutral within the range of 1.3379 to 1.3415, and turns bearish only if it falls below the 200-day average. By integrating macroeconomic factors, market flows, and technical analysis, the outlook for GBP/USD continues to lean towards a bullish stance, supported by stringent, data-informed risk management. The interplay of a weakening DXY below 99.00, US data that is mixed yet not alarming, a risk environment that remains cautious rather than frantic, and a distinct higher-low structure in price all suggest that taking an aggressive short position is unwarranted while the pair remains above 1.3415. From a tactical viewpoint, the appealing range for initiating new long positions lies between 1.3450 and 1.3475, with a daily close below 1.3415 serving as invalidation. The upside targets are initially set at 1.3530 to 1.3565, followed by 1.3600, contingent on underperformance in the US labor data. Only if the upcoming ADP, ISM Services, JOLTS, and NFP prints surprise strongly to the upside and push DXY above the 99.00 resistance band would a more cautious perspective be warranted. Until that occurs, the data and price movement indicate a BUY / bullish bias for GBP/USD, with 1.3415–1.3450 identified as the crucial level that must be maintained to uphold this perspective.