There is potential for the GBP to test the 1.3355 level, with the support at 1.3315 being less likely for the moment. The GBP’s outlook remains negative over the long term, with a possible decline to 1.3355 and potentially to 1.3315.
In the past 24 hours, GBP fell sharply to a low of 1.3364, deviating from the anticipated sideways trading range between 1.3410 and 1.3460. Although the drop was unexpected, there is still a possibility for GBP to test the 1.3355 support level. Resistance points are identified at 1.3400 and 1.3415 for any upward movements.
Shift In GBP Narrative
Over the next one to three weeks, the GBP narrative has shifted following a recent break below 1.3390, which ended a brief range-trading phase between 1.3390 and 1.3520. Due to the hastening downward momentum, there is now an expectation for GBP to move towards 1.3355, possibly reaching 1.3315. However, a break above the strong resistance level at 1.3445 would challenge this negative outlook.
Looking back at our analysis from this time in January 2025, we saw a rapid increase in downward momentum for the pound after it broke a key support level. That negative outlook feels relevant again today, as the pair struggles to hold gains above the 1.3400 handle. The conditions that prompted that view appear to be re-emerging.
Given the potential for a drop, traders should consider buying GBP/USD put options with strike prices near 1.3350, targeting the same levels we identified last year. This bearish view is reinforced by the latest UK inflation data for December 2025, which at 2.8% eased pressure on the Bank of England. This contrasts with a still-cautious US Federal Reserve, creating a clear policy divergence that favors the dollar.
Economic Factors Supporting Bearish Outlook
The UK’s economic fragility was further highlighted by the final Q4 2025 GDP figures showing near-stagnation, a stark contrast to the surprisingly resilient US jobs market reported last week. This dynamic supports a stronger dollar against a weaker pound, a trend we also saw through volatile periods in 2024. Therefore, establishing bearish positions seems prudent for the coming weeks.
For those with a more conservative approach, a bear call spread could be effective. One could sell call options with a strike price at or just above the 1.3445 ‘strong resistance’ level we highlighted in 2025. This strategy allows for profit from a sideways or downward drift in the pound, while clearly defining risk if the currency unexpectedly strengthens.
