The GBP/USD pair is experiencing a lack of buyer interest, remaining stable above the 200-day Simple Moving Average at around 1.3360. The US Dollar is attempting to recover from a recent dip, creating resistance for GBP/USD amidst a generally weaker equity market sentiment. However, the US Federal Reserve’s dovish stance is causing caution among USD buyers.
The British Pound has seen a rise, crossing the 1.3400 barrier following three consecutive weeks of gains. This increase is largely due to a weakened US Dollar, influenced by a recent Federal Reserve interest rate cut. The upcoming period will focus on the British Pound, with upcoming significant UK data and a Bank of England policy meeting on December 18. UK bond markets are displaying indecision, with 10-year gilt yields remaining stable, not offering much direction for traders.
Market Drivers
We see the GBP/USD pair is stalled around the 1.3360 level, holding just above the vital 200-day moving average which traders view as key support. The recent push toward 1.3400 was driven almost entirely by US dollar weakness rather than sterling strength. This suggests that without a new catalyst, the pair may struggle to advance further.
The dollar’s softness is a direct result of the Federal Reserve’s rate cut last week, a move that seemed justified after US Core CPI for November 2025 dipped to 2.1%, reinforcing a dovish outlook. In contrast, the UK’s situation is more complex, as last week’s inflation data for November showed a surprise jump to 3.5%. This puts the Bank of England in a difficult position for its upcoming meeting.
With the Bank of England’s policy decision arriving this Thursday, December 18, we have seen a noticeable increase in the implied volatility for GBP/USD options. Given the uncertainty, traders should consider using derivatives to manage risk or speculate on a large price swing following the announcement. A strategy like buying an options straddle could be effective, as it profits from a significant move in either direction.
Potential Scenarios
If the Bank of England takes a hawkish tone to fight that 3.5% inflation, we could see a quick break above the 1.3400 resistance. Historically, when we look back at the inflationary pressures of 2022 and 2023, central banks that acted decisively saw their currencies strengthen. A dovish message, however, could easily break the current support and send the pair lower.
