GBP/USD Rebounds from 1.3008 as Dollar Eases from Four-Month Highs
GBP/USD (Cable) trades around 1.3124 after bouncing from a weekly low of 1.3008, recovering as the U.S. Dollar Index (DXY) retreats from its four-month peak of 100.21 to 99.53. This move followed deep oversold signals — the RSI dropped below 25 earlier this week, its lowest since September 2023 — which triggered aggressive short covering. Traders who pushed the pound to its weakest level in two months were forced to unwind positions as the greenback faltered amid an extended 38-day U.S. government shutdown and falling Treasury yields.
The rebound was reinforced by profit-taking in DXY and positioning ahead of next week’s key data, including the delayed U.S. CPI report and UK GDP figures. The pair’s recovery from the 1.30 handle marks a pivotal inflection zone: a sustained move above 1.3140 would signal a near-term bottom, while a reversal below 1.3008 risks targeting 1.2831, a 138.2% Fibonacci projection of the 1.3787–1.3140–1.3725 sequence.
Technical Setup: Resistance at 1.3247, Trendline Support Near 1.2780
The 1.3247 level — once strong support — now acts as a resistance ceiling. A clear breakout above it would confirm that the corrective fall from 1.3787 has ended, opening space toward 1.3350–1.3500. However, failure to break this barrier keeps the broader downtrend intact. The 55-week EMA, now at 1.3185, aligns with this resistance cluster and continues to cap rallies.
On the downside, traders eye the 1.2780 trendline as critical long-term support. A decisive close below it would expose 1.2474, corresponding to the 38.2% retracement of the 1.0351–1.3787 rally. That area marks the lower bound of the current macro consolidation phase.
Momentum indicators suggest a fragile equilibrium:
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RSI (daily) rebounded to 43 after hitting oversold lows.
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MACD histogram shows contracting negative momentum.
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Volume-weighted price around 1.3110 confirms accumulation zones near current levels.
Macro Pressure: U.S. Shutdown Extends to 38 Days, Dampening Dollar Momentum
The extended U.S. shutdown has eroded investor confidence in the dollar’s short-term strength. Economic visibility remains limited — crucial releases like non-farm payrolls and retail sales were postponed — forcing traders to rely on second-tier sentiment data. The University of Michigan Consumer Sentiment Index dropped to 50.3, a six-month low, while 1-year inflation expectations rose slightly to 4.7%.
Meanwhile, Fed officials including Vice Chair Philip Jefferson signaled a pause in rate cuts, warning of “cautious adjustments” amid missing economic data. The market now prices a 66% probability of a 25-basis-point cut in December, a shift from 80% just two weeks ago. The Dollar Index’s correction from 100.21 to 99.53 reflects this repricing, easing upward pressure on GBP/USD.
UK Fundamentals: Domestic Data Mixed, but Services Stay Resilient
In the UK, the macro backdrop remains divided. Retail spending and manufacturing PMI remain weak, while services activity — particularly financial services and tourism — continue to stabilize. The Bank of England remains cautious but is expected to hold the Bank Rate at 4.75% through Q1 2026. Inflation has slowed to 3.9% YoY, but wage growth above 5% continues to anchor price stickiness.
Fiscal constraints also weigh on sentiment. The UK’s Q3 GDP growth is forecast near 0.1%, with the trade deficit widening to £3.8 billion. However, falling energy prices and stabilizing gilt yields (10-year at 3.94%) have softened pressure on the pound. The relative yield advantage of U.S. Treasuries narrowed slightly this week, reducing the dollar’s appeal against the pound.
DXY Weakness and Oversold Sterling Align for Technical Recovery
The broader dollar correction provides GBP/USD room for recovery. With DXY finding short-term support at 99.40, traders expect choppy conditions ahead of next week’s data releases. The GBP/USD rally from 1.3008 to 1.3140 mirrors EUR/USD’s move from 1.1500 to 1.1560, highlighting synchronized profit-taking across USD pairs.
The DXY structure remains broadly bullish, with higher highs since September’s Fed cuts, but the current pullback is natural after the four-month high breakout. Support zones at 98.98 and 98.60 provide buffers; if these hold, a stronger dollar rebound could reintroduce pressure on GBP/USD below 1.30.
Long-Term Outlook: Sterling’s Bearish Channel Persists Until 1.4248 Break
From a structural perspective, GBP/USD remains in a long-term corrective downtrend that began after the 2007 high of 2.1161. The 38.2% retracement of that full decline lies at 1.4480, a level never decisively breached. Until the pair breaks above 1.4248–1.4480, long-term sentiment stays bearish. Price movements since the 1.0351 2022 low represent corrective rebounds within this broader decline.
If the pair fails to break above 1.3247 and loses 1.2780, the market could gravitate toward 1.2474 or even 1.2100 by mid-2026. Conversely, a breakout above 1.3350–1.3500 would confirm a mid-cycle shift toward a stronger sterling phase, targeting 1.40–1.42 over the following quarters.
Market Sentiment and Options Positioning
The futures market shows mixed positioning. CFTC data indicates net GBP long contracts rising modestly to 15,200 after hitting yearly lows of 9,000 two weeks ago, signaling early repositioning. Options market implied volatility sits at 8.4%, the lowest since July, suggesting traders expect consolidation rather than an immediate breakout.
Skew analysis reveals higher demand for GBP/USD calls near 1.33–1.34 strikes, reflecting mild optimism in the short term. Conversely, downside protection remains heavy around 1.29 puts, underscoring the fragile confidence in the pair’s resilience.
Key Levels and Triggers to Watch
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Immediate Resistance: 1.3185 (55W EMA), 1.3247 (trend barrier)
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Immediate Support: 1.3008, 1.2831 (Fibonacci projection)
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Critical Long-Term Support: 1.2780 trendline
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Macro Events: U.S. CPI (delayed), UK GDP, Fed minutes, and DXY’s reaction to shutdown progress
