GBP/USD Price Forecast: Cable Retreats From 1.3876 As Fed Shift Lifts Dollar

GBP/USD Price Outlook – GBP/USD Slips From 1.3870 Peak As Warsh And BoE Collide

*Macro Shift: Warsh, Stronger USD And The Repricing Of GBP/USD

GBP/USD has flipped from an aggressive four-year push higher to a controlled retreat after Washington rewired the Fed story. Spot is now circling 1.3660–1.3700, well below the year-to-date high at 1.3876 and under the old resistance shelf at 1.3727. The change started the moment Donald Trump named Kevin Warsh as the next Fed chair, pushing the USD back into favour and forcing traders to rebuild long-dollar exposure. The US Dollar Index (DXY) has bounced toward the 97.10–97.20 area after a prior slide, and that alone has been enough to knock GBP/USD off its highs. Warsh’s record is clear: preference for a stronger dollar, criticism of aggressive quantitative easing, and a bias for a smaller balance sheet. That mix caps the probability of rapid rate cuts and supports higher real yields, which naturally favours the USD side of the pair at the expense of the pound.

Inside the US macro tape, the hawkish tilt is backed by hard data. The ISM Manufacturing PMI jumped from 47.9 in December to 52.6 in January, blasting through the 50.0 expansion threshold and smashing expectations around 48.5. A move of that size matters: it flips the sector from contraction to expansion in one print and validates the idea that the Fed can stay patient. At the same time, Conference Board consumer confidence has cratered to 84.5, an 11.5-year low, which argues for caution further out but does not yet force emergency easing. The Fed has just left rates unchanged, upgraded the growth view, and still signals only two to three cuts later in the year. Put together with Warsh’s nomination, the near-term reaction function for the Fed is more “wait and see” than “cut fast,” which keeps front-end US yields firm and the USD bid against sterling.

Event Risk Stack: Fed, NFP And How They Shape GBP/USD

The short-term playbook for GBP/USD is dominated by US data risk. With DXY stabilising around 97.10–97.20 and the Fed on hold, the next catalyst is the US labour market. The coming Nonfarm Payrolls release is expected to show around 70k new jobs after 50k previously. A print materially above that band, especially if paired with resilient wage growth, would harden the market’s belief that Warsh will inherit an economy that does not require fast easing. In that scenario, the USD leg strengthens again and GBP/USD can easily press down toward the 1.3600–1.3550 zone flagged by several desks as the bottom of the current range.
On the other side, a soft NFP series with clear labour weakness would re-open the debate around earlier rate cuts and could let GBP/USD re-attack 1.3750 and possibly the 1.38 handle. However, the pair now trades in a market that has already re-priced toward a stronger dollar. That means even weak jobs data will have to be meaningfully below 70k to fully unwind the “Warsh trade.” Anything close to consensus leaves GBP/USD still heavy above 1.37, with rallies more likely to be sold than chased higher.

UK Side: GBP Caught Between 3.4% Inflation And A Softer Labour Market

On the UK leg, fundamentals are not weak enough to justify a dovish Bank of England, but they are not strong enough to overpower a resurgent USD either. Headline CPI is running at 3.4%, well above the BoE’s 2.0% target. That single number almost guarantees no near-term rate cuts and forces the Bank to keep a hawkish tone even while acknowledging the economic slowdown. At the same time, the jobs market has shown visible fatigue, with prior labour readings flagging softer demand for workers. That tension – hot prices and cooling jobs – leaves the BoE boxed in and reluctant to offer markets a clear easing schedule.
There are pockets of strength. The S&P Global UK Manufacturing PMI just climbed from 51.6 to 51.8, the best reading since August 2024. That signals that activity is not falling off a cliff and gives the BoE cover to hold the Bank Rate at 3.75% this week. For GBP/USD, this structure creates a very specific dynamic: the pound is not cratering because domestic data still supports positive real yields, but it struggles to extend gains against a dollar that is now backed by better ISM data and a hawkish Fed candidate. The BoE meeting and the vote split will decide whether the market prices one or two cuts this year; any sign that the committee remains split and cautious keeps GBP supported on the crosses but does not automatically lift it against the USD.

Flow And Positioning: GBP/USD Bulls Trim Risk Into 1.37

Price action tells the positioning story. GBP/USD has been knocked off a four-year high near 1.3870–1.3876 and now oscillates around 1.3660–1.3700. The weekly currency heat map shows the pound slightly weaker versus the dollar, with GBP down roughly 0.33% against USD this week, even while outperforming the Swiss franc. That pattern – modest losses versus the dollar, gains versus low-yield Europe – is typical of a market that is trimming stretched longs rather than flipping into an outright sterling bear trend.
The precious-metals crash, with gold falling more than $1,000 from a record near $5,600, has unleashed cross-asset de-risking that favours cash and the dollar. Part of the GBP/USD drop is simply that macro trade being put back on: investors cutting high-beta commodity and FX positions, raising cash balances, and hiding in the greenback while waiting to see whether Warsh is confirmed and how quickly policy might really shift. That flow backdrop means rallies near 1.3750–1.3800 will likely meet real supply from macro funds and systematic models, at least until the BoE and NFP have passed.

Technical Map: GBP/USD Stuck Between 1.3550 Support And 1.3876 Resistance

Technically, the structure has rotated from impulsive bullish to corrective. The failed push above the four-year zone just under 1.3870–1.3876 marked exhaustion, and the subsequent slide to 1.3688 confirms that the top buyers are now under water. Price has dropped back below the old breakout shelf at 1.3727, flipping that level into resistance. On oscillators, both the RSI and the Percentage Price Oscillator (PPO) have pulled back from overbought territory and are rotating lower, which fits with a loss of upside momentum rather than an outright trend collapse.
Short-term support now sits in a band around 1.3630–1.3650, which aligns with the 0.50 Fibonacci retracement of the last leg higher and a rising intraday trendline. Below that, the next key level is 1.3550, identified as the lower edge of the recent trading range and the zone where several sell-side desks see downside targets converging. On the topside, bulls must reclaim 1.3700 first, then clear 1.3750 and retest the 1.3800–1.3876 pocket. Until that entire cluster is broken, every push into it looks like a rally inside a broader consolidation, not the start of a fresh up-leg.

Short-Term Trade Levels: Where GBP/USD Bulls And Bears Take Their Shot

Intraday, GBP/USD trades in a tight box. Spot around 1.3660–1.3700 leaves bears in control as long as the pair stays beneath the 1.3727 pivot. Sellers are likely to defend the 1.3700–1.3750 band aggressively, with risk defined above the prior high close to 1.3875–1.3876. That gives a clean asymmetric setup: roughly 150–200 pips of downside room toward 1.3550, against about 175–200 pips of risk if that four-year high is broken.
For dip-buyers, the obvious zones are the 1.3630–1.3650 region and the deeper 1.3550 shelf. The first is a tactical support tied to the Fibonacci cluster and recent lows; the second is strategic, marking the bottom of the January range and the point where medium-term investors will reassess whether the BoE’s 3.4% inflation problem can still justify holding sterling over the dollar. Daily-chart structure still shows the price comfortably above the 200-day EMA near 1.3480, so the longer-term uptrend is not broken yet. That said, as long as price trades between 1.3550 and 1.3876, GBP/USD is effectively range-bound inside a macro environment that now favours the USD side.

Final Stance On GBP/USD: Short-Term Sell, Looking For 1.3550 Before Any Durable Floor

With GBP/USD backing off a four-year high near 1.3870–1.3876, the DXY stabilising around 97.10–97.20, US ISM Manufacturing snapping back to 52.6, UK inflation stuck at 3.4%, and the BoE likely holding the Bank Rate at 3.75% while Warsh’s nomination hardens the Fed’s perceived stance, the balance of evidence tilts toward more downside before a new leg higher can start.
The near-term call is Sell GBP/USD, using the 1.3700–1.3750 area as the main supply zone and targeting a move toward 1.3600 first and 1.3550 if US data and the BoE meeting confirm the current narrative. Only a sustained break above 1.3876 with softer US numbers and a notably more hawkish BoE would flip that stance to a clean bullish bias. Until that happens, GBP/USD is a sell-on-rally market, not a breakout buy.

That's TradingNEWS