GBP/USD Price Forecast – Can the Pound Hold 1.35 as Tariffs Crush the Dollar?

GBP/USD Price Forecast – GBP/USD Bulls Drive for 1.3500 While DXY Sinks Toward 98.80

Macro backdrop for GBP/USD – pound strength built on “slow cooling” jobs and tariff-driven dollar weakness

GBP/USD is trading in the 1.3430–1.3490 band after punching through the key 1.3450 cap that held for days, with intraday highs around 1.3483–1.3486 and markets clearly eyeing the round 1.3500 handle. The pair is being pulled higher by two overlapping forces. On the UK side, the latest labour figures show an economy that is cooling slowly, not collapsing: the ILO jobless rate remains at 5.1% in the three months to November versus expectations for 5.0%, the highest since early 2021 but still far from crisis territory. December jobless claims added 17.9K, pointing to incremental slack rather than a break. Wage growth is easing but still elevated: regular pay (ex-bonus) runs at 4.5% three-month year-on-year, down only a tick from 4.6%, while total pay including bonuses prints 4.7% against a 4.6% forecast. That combination gives the Bank of England room to delay deep cuts while inflation works lower, which keeps UK yields relatively attractive versus a slowing Europe.

On the U.S. side of GBP/USD, politics are now doing more damage to the dollar than macro. The Dollar Index (DXY) has slipped under 99.00 and trades around 98.837, after losing the 99.065 support that now acts as resistance. The RSI on DXY has sunk below 30, flagging an oversold dollar and opening the door to occasional bounces, but the structural bias is down as long as it stays below 99.065 with supports layered at 98.667, 98.409, 98.151 and 97.863. The trigger for this “Sell America” leg is explicit: Trump’s decision to link 10% tariffs from 1 February on imports from Denmark, Sweden, France, Germany, the Netherlands, Finland, the UK and Norway – rising to 25% from 1 June – to his push to acquire Greenland. That threat has revived talk of an EU–US trade war and prompted warnings such as the IMF chief telling Europe to “get your act together”. For GBP/USD, that means the pound is rising not because the UK looks brilliant, but because the USD is being repriced lower on political and trade risk even as the labour market at home remains strong enough to delay Fed cuts.

UK labour and BoE implications for GBP/USD – wages at 4.5–4.7% keep rate-cut timing cautious

The details of the UK labour market matter for GBP/USD because they dictate how quickly the BoE can pivot. The 5.1% unemployment rate, slightly above the 5.0% forecast and the highest since early 2021, confirms that the jobs market has moved past its tightest point. The +17.9K rise in jobless claims in December points in the same direction: incremental slack, not a crash. On the wage side, 4.5% regular pay and 4.7% total pay are well off the post-pandemic peaks but remain too high for a central bank targeting 2% inflation. That mix is awkward but clear: the BoE can avoid hiking again, yet it has no urgent justification to slash rates aggressively. Markets therefore lean toward rate cuts starting later and proceeding slowly, with more emphasis on data such as UK CPI and retail sales due in coming days. For GBP/USD, this profile is mildly supportive: it takes outright recession and emergency easing off the table and leaves the pound in a better position than currencies tied to weaker growth and deeper easing expectations.

The institutional commentary lines up with that risk profile. BoE Governor Bailey has explicitly cited geopolitical uncertainty as a major factor for financial stability and warned that threats to Federal Reserve independence carry “substantial potential spillovers” to the UK. That message tells traders that the BoE is watching Washington as much as Westminster, which matters when tariff-linked politics are the primary driver of USD moves. A UK that is cautiously data-driven, with wages in the 4.5–4.7% band and unemployment barely above forecast, provides a backbone for GBP that contrasts with a U.S. policy mix being pulled around by tariff threats and fights over the Fed.

USD side of GBP/USD – tariffs, Fed timing and a DXY breakdown at 98.837

The USD leg of GBP/USD is being shaped less by classic macro releases and more by geopolitical risk and policy expectations. The labour market in the U.S. remains strong enough that markets have pushed back the timing of Fed cuts: instead of expecting reductions as early as January and April, traders now price the first meaningful cut in June, with perhaps another in September. That should, in theory, support the dollar. Yet the DXY still trades near 98.837, below both the broken 99.065 floor and the rising channel that had been containing previous rallies. The reason is the tariff shock. Trump’s 10% tariff threat on a broad basket of European imports from 1 February, stepping up to 25% by summer, shifts the narrative from “strong U.S. growth and high yields” to “rising policy risk and trade conflict”.

Technically, DXY has finished a rising sequence and now trades with a bearish bias: support sits at 98.667, 98.409, 98.151 and 97.863, while 99.065 has flipped into resistance after the breakdown. The 50-period and 200-period moving averages are flattening, signalling fading upside momentum. With RSI below 30, short-term bounces are possible, but the balance of risk is for a weaker USD unless the tariff rhetoric is rolled back or a positive surprise in U.S. data restores confidence. That setup favours further gains in GBP/USD while also warning that any sharp dollar rebound from oversold conditions could trigger fast corrections from levels like 1.3500, 1.3561 or 1.3611.

Spot behaviour of GBP/USD – from range trading around 1.3330–1.3450 to a clean breakout

Price behaviour in GBP/USD over the last week explains how positioning has flipped. On 13 January, selling the pair from resistance around 1.3486 delivered a profitable short as the market rejected that area and swung lower. That move fit a range-trading view using 1.3486 as a ceiling and the low-1.33s as the buy zone. Since then, the structure has changed. The pair found demand at successive supports – 1.3332, 1.3402, 1.3432 – levels that were explicitly used as potential long entries by short-term traders looking for bullish reversals on the hourly chart. Those dips attracted buyers instead of accelerating lower, confirming that the underlying bias was turning positive.

The decisive shift came when GBP/USD finally pushed through the 1.3450 barrier and the descending trendline that had capped every rally. Once that level broke, the pair extended toward 1.3483–1.3486, with intraday prints consolidating underneath the 1.3500 round figure. At current marks around 1.3480–1.3490, the previous range top at 1.3450 has been converted into first support rather than resistance. That change in behaviour – sellers failing at old levels and buyers defending pullbacks – is typical of a transition from a sideways market into a trending one, and it backs the idea that GBP/USD is now in a bullish phase rather than just bouncing inside a box.

Technical map for GBP/USD – moving averages, RSI and key intraday levels

The technical layout on the 4-hour and hourly charts supports the bullish narrative but also flags the risk of a near-term pause. GBP/USD is trading above both the short-term and long-term moving averages. The 50-period MA on the 4-hour chart sits close to 1.3425, acting as a pivot and dynamic support. As long as the pair stays above 1.3425, buyers remain in control; a clean break below that line would open the way toward 1.3400 and then the prior weekly lows around 1.3340. On the topside, immediate resistance lies at 1.3500, followed by 1.3531, 1.3561 and then 1.3611, which are mapped out by prior reaction highs and Fibonacci projections used by intraday desks.

Momentum indicators are stretched. The RSI on the 4-hour chart is parked above 70, indicating an overbought market and raising the probability of a corrective pullback or sideways consolidation before any sustained push through 1.3500. Earlier in the week, RSI levels around 60 were consistent with a building uptrend; the current extension reflects an acceleration driven by the tariff shock and the break of 1.3450. The pattern traders will watch on the hourly chart is classic price-action reversal behaviour: long wicks, pin bars, dojis or engulfing candles around key levels like 1.3432, 1.3402, 1.3332 for longs, and 1.3486, 1.3503, 1.3531 for tactical shorts or profit-taking.

Intraday trade structure around GBP/USD – where the market wants to buy and where it wants to fade

Short-term trade plans circulating in the market sketch a clear ladder of levels for GBP/USD. On the long side, dip buyers are watching 1.3432, 1.3402 and 1.3332 as zones to re-enter the trend whenever price prints a convincing bullish reversal candle on the H1 chart. Typical risk management involves a stop loss one pip below the local swing low, moving the stop to break-even once the trade is 25 pips in profit, taking half the position off at that first +25 pip mark, and leaving the remainder to run toward higher targets.

On the short side, only aggressive scalpers are stepping in against the trend, looking for bearish reversal patterns near 1.3486, 1.3503 or 1.3531. The logic there is simple: up at those levels, RSI is already above 70, the pair is extended above trendlines, and any negative headline on tariffs or UK data can trigger quick profit-taking. Stops for those tactical shorts sit just above the local swing high, with the same 25-pip partial-take-profit and stop-to-break-even logic. The deeper point is that the structure is now asymmetrical: more players want to buy dips than sell rallies, but the extreme overbought reading means that new longs prefer pullbacks toward 1.3430–1.3400 rather than chasing breakouts above 1.3500.

Data calendar and event risk for GBP/USD – labour, CPI, retail and Greenland

The next several days bring a heavy data and headline mix for GBP/USD. In the very short term, traders are positioned ahead of UK labour market releases, with forecasts for the ILO jobless rate to ease from 5.1% to 5.0% and for average earnings including bonuses to slow from 4.7% to 4.6%. Later in the week, UK CPI and retail sales for December will either confirm or challenge the current “slow cooling” narrative. A downside surprise in wages or a soft CPI print would bring forward BoE cut expectations and could knock GBP/USD back below 1.3450. Conversely, sticky inflation and resilient spending would justify the current pricing that keeps cuts staggered and supports sterling.

On the geopolitical side, the Greenland tariff dispute remains the wild card. Trump’s social-media-driven push to “own” Greenland and his threat to tax allies by 10% from February 1, rising to 25% by June 1, has drawn firm pushback from European leaders and triggered talk of retaliation. IMF officials have warned Europe to tighten coordination, and BoE and ECB policymakers are openly discussing spillover risks from any attack on Fed independence and the wider U.S. institutional framework. For GBP/USD, these events matter through the USD, not directly through the pound: each escalation chips away at the dollar’s safe-haven status and keeps DXY pinned near 98.8–99.0 instead of snapping back above 99.5–100.0.

Scenarios for GBP/USD – extension above 1.3500 or correction toward 1.3400?

From current levels near 1.3480–1.3490, GBP/USD sits at an inflection point. In the bullish continuation scenario, the pair consolidates above 1.3450 without losing the 1.3432–1.3425 band. Fresh positive surprises from UK data – stable wages around 4.5–4.7%, unemployment edging down to 5.0%, core CPI staying sticky – would justify a grind higher. If DXY remains stuck below 99.065 and the tariff rhetoric intensifies, the path of least resistance is a test of 1.3500, followed by 1.3561 and potentially 1.3611. In that path, any dip toward 1.3430–1.3400 is likely to be bought.

In the correction scenario, overbought technicals and a crowded long side collide with either softer UK data or a short-term dollar rebound from oversold RSI. A break below the 1.3425 50-period MA and a failure of 1.3400 would expose 1.3340 and then 1.3332, which is a key level for medium-term bulls. As long as GBP/USD remains above 1.3332, the broader structure still favours higher levels later; a daily close below 1.3332 would signal that the move from 1.3330 to 1.3480+ was a one-off spike rather than the start of a sustained trend.

Verdict on GBP/USD around 1.3480–1.3490 – Buy, Sell or Hold?

Putting all the numbers together – GBP/USD trading around 1.3480–1.3490 after breaking 1.3450, DXY sitting near 98.837 below the 99.065 breakdown point, UK unemployment at 5.1% with forecasts for 5.0%, wage growth at 4.5%–4.7%, December jobless claims up 17.9K, BoE in no rush to slash rates, Trump’s tariffs at 10% from February 1 and potentially 25% from June 1 on UK and EU imports, technical supports at 1.3450, 1.3432, 1.3402, 1.3332, resistances at 1.3500, 1.3531, 1.3561, 1.3611, RSI above 70, and both 50- and 200-period MAs sloping higher – the bias is clear.

GBP/USD is a BULLISH BUY on dips, not at highs. At current marks near 1.3480–1.3490, upside exists toward 1.3561–1.3611, but the overbought RSI and proximity to 1.3500 argue against fresh large entries here. The cleaner risk/reward sits in adding long exposure on pullbacks into 1.3430–1.3400, with an invalidation level below 1.3332. As long as GBP/USD trades above 1.3332 and DXY stays under 99.065, the data and price action justify a bullish stance rather than a sell or flat view.

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