Technical Outlook On GBP/USD
The Pound Sterling trades just below its recent highs against the US Dollar, following the Federal Reserve’s recent rate cut. The pound reaches a seven-week high of approximately 1.3400, while the US Dollar remains low, affected by the Fed’s dovish stance. The Fed’s rate adjustment to 3.50%-3.75% was anticipated, with an expectation of another cut in 2026. This has pressured the US Dollar further, compounded by a lower inflation projection and noteworthy unemployment increases.
UK economic data releases are anticipated in the coming days, including GDP data expecting a 0.1% growth, labour market figures, and November’s Consumer Price Index data. A strong economic performance could boost growth outlooks after updates from the UK’s fiscal watchdog raised GDP forecasts for the year to 1.5%. Meanwhile, the Bank of England is expected to cut its interest rate by 25 basis points to 3.75%, owing to weak job market circumstances. In tandem with this, the US Initial Jobless Claims data will influence the GBP/USD pair, predicting an increase to 220,000 claimants.
The GBP/USD is well-supported above a 20-day EMA of 1.3266, maintaining an upwards momentum, with possible advances towards October’s high of 1.3471. The ongoing technical analysis points to a positive outlook for the GBP, while a daily close beneath this key level could shift perspectives.
The Federal Reserve’s decision yesterday to lower interest rates has pushed the US dollar to a seven-week low. This has directly benefited the Pound, which is now trading firmly around 1.3370 against the dollar. We see this as a continuation of a trend driven by shifting central bank policies.
We’ve been watching the US labor market soften for a few quarters now, a big change from the tight conditions seen back in 2023 and 2024. Last week’s report showing unemployment ticking up to 4.2% gave the Fed the cover it needed to make this move. This confirmed our view that the focus has shifted from fighting inflation to supporting a slowing economy.
Anticipation On Economic Data And BoE Decision
All eyes are now on the Bank of England’s decision next week, where a similar rate cut to 3.75% is widely expected. The UK’s economic picture has been weakening, with unemployment recently rising to 4.8% and inflation cooling to 2.9% in October. This gives the BoE a clear runway to ease policy without worrying too much about price pressures.
The immediate focus is tomorrow’s UK GDP data for October, followed by inflation figures next week. This series of high-impact events creates a setup for increased volatility in the GBP/USD pair. Traders could consider using options, such as straddles, to profit from a significant price move in either direction, regardless of the data’s outcome.
We feel the market has already priced in the BoE rate cut, creating a potential opportunity if UK economic data surprises to the upside. If tomorrow’s GDP or next week’s inflation figures are stronger than expected, the BoE might hold rates, sending the Pound sharply higher. Buying short-dated GBP/USD call options with a strike price around 1.3450 could be a low-cost way to position for such a surprise.
This environment of major central banks easing policy in tandem is something we’ve seen before, most notably during the global response to the pandemic in 2020. In those situations, currency movements were often driven by which economy was perceived as being ‘less weak’. This suggests traders should closely compare the incoming US and UK data releases to find an edge.
