GBP/USD Price Forecast - Pound Tests 1.3500 as Dollar Weakens and Rate Path Divergence Lifts Sterling

GBP/USD pushes toward 1.3500 as USD weakens into year-end

GBP/USD weekly move and current trading band

GBP/USD opened the week around 1.33785 and closed near 1.34978, delivering roughly a 120-pip advance in five trading days. Price is now trading inside a clearly defined short-term band between 1.34310 and 1.35430, with Friday’s close parked near the upper edge of that range. The key point is that every dip toward the mid-1.34s attracted buyers, and the pair finished the week pressing against resistance rather than fading back into the middle of the range. That behaviour signals that real money and systematic trend strategies are accumulating GBP/USD on weakness instead of fighting the move higher.

GBP/USD reconnects with the August–September supply zone

The current level around 1.34978 matters because it brings GBP/USD back into the same neighbourhood it traded in during late August and September. At that time the pair spent days oscillating around 1.36000, with a brief extension toward 1.37000 on 17 September before offers capped the advance. The fact that spot has returned to this area without any dramatic UK macro surprise underscores that the driver is primarily a weaker dollar rather than a euphoric repricing of sterling itself. A sustained daily close above 1.35000 would reopen the path toward 1.36000, and if that zone is cleared, the prior spike high near 1.37000 becomes the next realistic upside reference in the medium term.

Bank of England stance keeps GBP supported versus USD

The Bank of England has its policy rate at 3.75% after the latest cut, but the details matter more than the headline. The decision came with a 5–4 split vote, showing the Monetary Policy Committee is far from unified and that a sizeable minority still preferred to hold rates higher for longer. UK inflation, running around 3.2% versus the 2.0% target, remains uncomfortably elevated for a central bank that has already been criticised for moving too slowly earlier in the cycle. That combination – inflation still above target, a narrow vote, and cautious communication – implies that the BoE is unlikely to rush into an aggressive easing cycle. For GBP/USD, that translates into a supportive rate differential backdrop as long as markets expect the Federal Reserve to cut more and faster than the BoE over 2026.

Federal Reserve data strength versus soft US Dollar price action

On the US side, preliminary GDP growth around 4.3% versus expectations closer to 3.2% confirmed that the real economy is still running much hotter than most investors projected a few months ago. Under normal circumstances such a beat would tighten financial conditions and give the dollar some structural support. Instead, the US Dollar Index printed a decisive bearish weekly candle and closed near its lows, highlighting that positioning and narrative are overwhelming the raw data. Markets are still pricing roughly two 25-basis-point cuts from the Fed over 2026, and investors appear more focused on the direction of policy than on the current strength of activity. In that environment, a strong GDP print that does not produce a durable dollar bounce is effectively a signal that USD rallies are being sold, which directly benefits GBP/USD as one of the core anti-dollar pairs.

Liquidity conditions and the quality of the GBP/USD rally

The move in GBP/USD occurred in classic year-end conditions, with liquidity thinned by the holiday calendar. That matters because low volume can either exaggerate moves or make them unreliable. The cross-check is in other assets. WTI crude, quoted as CL=F, traded as high as roughly 58.73 before slumping back toward 56.65 by the Friday close, a textbook illustration of thin-tape intraday reversals. Silver exploded more than 17% over the week and nearly 60% over the past five weeks, a price path that looks more like a speculative mania than an orderly trend. Against that backdrop, GBP/USD advanced steadily and held its gains into the weekly close rather than giving them back in a late flush. That resilience improves the quality of the move: the rally is not just a one-day squeeze but a controlled grind higher supported by macro positioning and rate expectations.

Risk-on environment and its impact on GBP/USD

The broader risk backdrop also leans against the dollar. The S&P 500 pushed to a new all-time high into year-end, confirming that equity investors are comfortable adding risk rather than hiding in cash. Gold (XAU/USD) broke to fresh record highs and closed near the top of its weekly range. Silver, platinum and palladium posted outsized gains and multi-year or all-time highs, showing that capital is pouring into metals as an inflation and currency hedge. In risk-on regimes where equities are grinding higher and volatility is contained, the USD tends to weaken as a funding currency while higher-beta majors like GBP and AUD outperform. GBP/USD is tracking exactly that script: a weaker dollar funding leg, coupled with a currency that still offers positive real yield when inflation and policy rates are considered together.

Interest rate differentials and GBP/USD relative value

At 3.75%, the BoE’s Bank Rate sits in a zone where the real policy stance is only modestly restrictive relative to inflation at 3.2%. Cutting too aggressively would risk re-igniting price pressures and damaging credibility, especially with political scrutiny and a still-elevated cost of living in the UK. By contrast, the Fed is judged primarily through the lens of how quickly it normalises from restrictive territory after having taken rates to a cycle peak. The market’s belief that US rates will converge lower faster than UK rates is what shifts relative value in favour of GBP/USD. Even without a booming UK economy, a scenario in which the BoE trims slowly while the Fed is seen as closer to an easing cycle keeps sterling structurally supported against the dollar on a six- to twelve-month horizon.

Key GBP/USD technical zones and behaviour around 1.3500

Technically, immediate support for GBP/USD sits in the 1.34310–1.34500 area, which aligns with the lower bound of the quoted short-term range and with intraday demand that appeared several times during the week. The weekly open near 1.33785 is the deeper line in the sand: as long as price stays above that, the current upswing remains intact. On the upside, 1.35000 is the obvious psychological barrier now being tested. A clean daily close above 1.3500, followed by intraday pullbacks that hold above that level, would indicate that buyers have absorbed the offers in that region and are ready to target the 1.36000 zone that capped price for much of late summer. A later break of 1.3600 would shift focus toward 1.37000, the September spike high, where trend followers and option structures would likely reassess risk.

Event risk and potential GBP/USD volatility catalysts

In the near term, the next major catalyst is the FOMC Meeting Minutes, which can recalibrate the entire Fed narrative in a single session if the tone diverges from what the market has priced. A more hawkish set of minutes that pushes back against early-cut expectations could spark a fast, technically driven USD squeeze that drags GBP/USD back toward 1.34310 or even toward the high-1.33 region. On the UK side, any BoE communication that leans more dovish than the last vote – for example, if speeches hint at comfort with inflation reverting to target faster than expected – would undercut sterling and expose longs built just under 1.3500. Because both sides of the pair are heavily rate-driven at this stage of the cycle, headline risk from central bank commentary will likely dominate second-tier data until normal liquidity returns after the New Year.

GBP/USD in the context of the wider FX complex

Across G-10 FX, AUD/USD delivered the strongest percentage move last week as investors used the softer dollar to add to higher-beta exposure. GBP/USD followed the same pattern but with a more supportive central bank backdrop thanks to the BoE’s caution on rapid easing. The US Dollar Index itself is showing a short-term bearish trend after printing a weekly engulfing candle and closing near the low of the range, which reinforces the view that the dollar is in a corrective phase rather than an impulsive rally. In that environment, GBP/USD sits in a favourable relative position: it offers exposure to dollar weakness without the more extreme cyclical risk embedded in some commodity currencies, and it trades with deep liquidity, allowing institutional flows to scale in and out around well-defined technical levels.

Strategic view on GBP/USD: bias, scenarios, and risk levels

Putting the pieces together, GBP/USD has moved from 1.33785 to 1.34978 in a week, reclaimed an important prior range, and is now pressing directly against the 1.35000 pivot that separates the mid-year chop from the August–September highs. The short-term map is straightforward: as long as price holds above 1.34310–1.34500, the bias stays constructive, with 1.35000 as the active battleground and 1.36000–1.37000 as the medium-term upside corridor if dollar weakness persists. A decisive failure back below 1.34310 followed by a break under 1.33785 would neutralise that bullish narrative and argue for a wider consolidation or a deeper correction before buyers are willing to step back in size. Until that happens, the structure, macro backdrop, and flow picture all point to a market that is still more interested in buying dips in GBP/USD than in aggressively selling strength.

That's TradingNEWS