During the North American session, GBP/USD remained stable near 1.3380, with the British Pound trading sideways against the US Dollar. The pair failed to reclaim the 200-day Simple Moving Average (SMA) after strong US economic data capped Sterling’s progress.
US economic data showed the Consumer Price Index (CPI) remained at 2.7%, while the Producer Price Index (PPI) rose to 3% in November. The labour market evidenced strength, with the Unemployment Rate at 4.4% and Initial Jobless Claims dropping to 198K.
Impact Of Economic Data
This led to reduced expectations for Federal Reserve rate cuts, pushing the US Dollar higher. As a result, the US Dollar Index (DXY) increased 0.10% to 99.43, impacting the Pound.
In contrast, despite UK economic growth in November 2025 exceeding projections, the Pound appreciated against the Euro but remained weak against the Dollar. Money markets still anticipate two 25-basis point rate cuts by the Bank of England in 2026.
Upcoming data releases include UK jobs and inflation figures, while the US will see housing data and Core PCE indicators. GBP/USD short-term outlook suggests bearish tendencies, with potential for challenging the 50-day SMA and testing support levels.
The included heat map displays percentage changes in major currencies, with the Pound weakest against the Dollar but strongest against the Euro.
Central Bank Policy Differences
We are seeing the US Dollar gain strength because the Federal Reserve is expected to keep interest rates higher for longer. This is putting pressure on the British Pound, as the Bank of England is still anticipated to cut rates twice this year. This growing difference in central bank policy is the main story driving the GBP/USD pair.
The jobs report from last Friday, January 9th, confirmed the US economy’s resilience, adding 215,000 jobs against expectations of 180,000. This solid data, combined with unemployment holding steady at 4.4% in December 2025, makes it harder for the Fed to justify aggressive rate cuts. As a result, the Dollar Index is pushing back towards its recent highs near 99.50.
Traders have responded by aggressively reducing bets on Fed easing, with derivative markets now pricing in just 44 basis points of cuts for all of 2026. This is a significant shift from the 60 basis points priced in just a few weeks ago. This repricing makes holding dollars more attractive and supports further upside.
On the other hand, the pound finds little support despite November 2025’s better-than-expected UK growth figures. The market is looking past that, with overnight index swaps showing a nearly 90% probability of a Bank of England rate cut by May. This expectation is capping any real strength in Sterling.
Given this outlook, we see opportunities in strategies that benefit from a falling GBP/USD, such as buying put options with strike prices below 1.3300. The pair’s failure to stay above the key 200-day average at 1.3405 signals technical weakness. The next major support level to watch is the 50-day average around 1.3334.
However, we must watch next week’s UK inflation data and the US Core PCE report closely for any surprises. We remember how during the 2022-2023 period, a single inflation report could dramatically shift central bank expectations overnight. A hot UK consumer price index could quickly challenge the bearish sentiment against the pound.
