GBP/USD Price Forecast - Pound Near 1.37: Pound Rallies On UK Inflation Shock And Dollar Slide

GBP/USD Price: Pound Stretches Toward 1.37 As Dollar Buckles

GBP/USD Price Structure And Key Levels

Spot GBP/USD has accelerated from the October–November floor around 1.3000–1.3016 to the 1.3680–1.3730 band, clearing every major resistance level seen since mid-2025. The pair printed a fresh four-month high just above 1.3680 and is now probing the 1.3700–1.3730 zone, which overlaps the September 2025 high at 1.3730 and sits just below the July 2025 peak near 1.3790. That cluster between 1.3730 and 1.3790 is the immediate resistance corridor that decides whether this move extends into a full-scale trend toward 1.3800 and potentially 1.4000.
On the daily chart, price has carved an inverted head-and-shoulders base off 1.3000, then driven cleanly above the 50-day and 100-day EMAs. The 100-day EMA near 1.3385 is rising, confirming that this is not a one-off spike but a sustained bullish trend. Each retracement since the 1.3016 low has formed a higher trough, with the latest corrective floor around 1.3450–1.3480 before buyers forced the break of 1.3650 and then 1.3680.

Technical Momentum: Overbought But Still Bullish

Momentum gauges are stretched but still aligned with a bullish bias. Daily RSI around 70–72 signals overbought conditions but does not yet show a confirmed reversal; it indicates elevated risk of a pause or shallow pullback rather than an immediate trend break. Bollinger Bands have widened with price riding or slightly exceeding the upper band near 1.3656–1.3700, a classic signature of a strong directional move that is becoming extended. Initial demand sits around 1.3640–1.3650, the recent gap and intraday support, followed by 1.3590–1.3600, where short-term buyers previously stepped in. Below that, a deeper corrective leg would test the 20-day mid-band near 1.3480, then the rising 100-day EMA around 1.3385 and the lower band near 1.3306. On the upside, breakpoints are clearly stacked: 1.3713, then 1.3730, 1.3750, 1.3790 and finally the 1.3800 psychological barrier.

UK Macro Data: Inflation And Activity Support A Firm GBP

On the domestic side, the UK backdrop justifies a stronger GBP. Inflation remains well above target, with December CPI running in the mid-3% area, roughly 3.4%–3.9% year-on-year, far above the Bank of England’s 2.0% objective. That level of inflation locks the BoE into a cautious stance on easing. December retail sales rose 0.4% month-on-month after a prior drop, signaling that household demand has not collapsed. Core retail sales excluding fuel also beat expectations, reinforcing the view that the consumer sector is stabilizing rather than rolling over. The composite PMI at 53.9, a 21-month high, shows broad-based expansion across services and manufacturing. This combination of above-target inflation, positive real activity and resilient consumption keeps the UK out of the “urgent cuts” camp.

BoE Policy Path: Cuts Delayed And Carry Advantage For GBP

Rate expectations reflect that macro mix. Markets no longer price an early and aggressive easing cycle from the BoE. The next meeting in February is widely seen as a steady-policy event, with Bank Rate left unchanged. The first cut is now pushed toward the middle of 2026, not early in the year. That shift is critical for GBP/USD because it preserves a rate and carry advantage for the pound against currencies tied to central banks already deep into cutting cycles. With Bank Rate staying high into 2026, sterling becomes more attractive as a yield and as a hedge against inflation persistence. Long-horizon projections suggesting GBP/USD around 1.34 at the end of 2026 or early 2027 imply that once UK inflation moderates and BoE cuts begin, the pair may normalize lower, but in the near term the structure favors a stronger pound while this delay in easing remains in place.

USD Side: Fed Cuts, DXY Below 98 And Political Noise Weigh On The Dollar

The USD side is the mirror image: policy is already in easing mode, and politics is directly dragging on the currency. The Fed has delivered three rate cuts, bringing the target band into the 3.50%–3.75% range. For Wednesday’s FOMC meeting, markets assign near-total probability to a hold at that level, but futures still price at least two more quarter-point cuts by year-end, with some houses projecting March and June cuts as the base case. The U.S. Dollar Index has slipped under the 98.00 handle into the 97 area, a zone that technicians view as structurally fragile. From here, additional deterioration could trigger a broader phase of USD weakness if Fed guidance is not able to push back against easing expectations.

US Macro, Shutdown Risk And Fed Independence Concerns

Fundamentals in the U.S. are not collapsing outright, but the balance of risks is skewed against the dollar. The upcoming consumer confidence print is expected around 90.9 versus 89.1 previously, and the House Price Index will offer another view of housing resilience, but those releases are incremental, not regime-changing. The market’s focus is on political risk and the Fed’s perceived independence. Shutdown risk has resurfaced as Congress fights over funding for the Department of Homeland Security, with a deadline at the end of January. At the same time, President Trump is preparing to name the next Fed chair. Investors fear that a chair more closely aligned with the administration could push for faster cuts than the current FOMC guidance implies, undermining the institutional anchor that historically supports the USD in periods of turbulence. That perception directly feeds the “sell dollar” bias.

Safe-Haven Rotation: Gold And Yen Outperform The USD

In this environment, the USD is not acting as the dominant safe haven. Instead, capital has rotated into gold and the yen. Gold has broken through the $5,000 barrier and is holding around the $5,050 zone, while silver has also pushed to fresh records. Those moves show that investors seeking protection are using metals rather than the dollar as their primary hedge. On the FX side, suspected official intervention has driven roughly a 3.5% drop in USD/JPY over a few sessions, amplifying demand for the yen and signaling that policymakers in Tokyo and Washington will not tolerate a one-way dollar trade indefinitely. These dynamics pull flows away from USD and keep DXY on the defensive, which mechanically supports GBP/USD as long as UK data justifies the pound’s premium.

Macro Story For GBP/USD: Clear Rate And Growth Divergence

The core macro divergence is straightforward. On one side, the BoE faces CPI between 3.4% and 3.9%, a composite PMI at 53.9, and retail sales up 0.4% in December. That combination forces caution and delays rate cuts, giving GBP a structural tailwind. On the other side, the Fed is already in a mid-3% band with three cuts done and at least two further cuts priced in, while the dollar index trades below 98 near 97. Add shutdown risk, tariff threats, and uncertainty about the next Fed chair, and the USD carries a political discount alongside its policy discount. That configuration strongly favors a higher GBP/USD level while current conditions persist.

Short-Term Tactical Levels: Where The Trend Can Pause Or Extend

Tactically, the pair sits in a late-trend but intact upmove. From the October low around 1.3016 to the current 1.3700–1.3730 region, GBP/USD has gained roughly 700 pips, about 7% in three months. The key short-term support levels are 1.3640–1.3650, then 1.3590–1.3600. Deeper, the 1.3570 region – flagged previously as “significant resistance” – now functions as a pivot that bulls must defend to maintain control. Below that, 1.3480 (20-day band) and 1.3385 (100-day EMA) are the next structural supports. On the upside, a clean daily close above 1.3730 would open 1.3750, 1.3790 and 1.3800, with an extension scenario pointing toward the 1.4000 psychological mark if dollar selling accelerates further. With daily RSI above 70 and price over the upper Bollinger Band, the risk of a short-term pause or consolidation is high, but the underlying trend remains bullish as long as the pair holds above the 1.3570–1.3600 band.

Event Risk: FOMC, Powell’s Tone And US Data As Catalysts

The next volatility trigger for GBP/USD is the FOMC decision and Powell’s press conference. Rates are expected to remain at 3.50%–3.75%, and there will be no new dot plot, so the entire signal comes from the Chair’s language. A clearly hawkish tone that questions the market’s March and June cut assumptions could deliver a short squeeze in the USD, dragging GBP/USD back toward 1.3590–1.3640 and testing how strong dip-buying interest really is. Conversely, if Powell leans dovish or fails to push back against current easing pricing, the dollar’s slide can deepen, enabling a test of 1.3730–1.3800 in the days that follow. Secondary US data such as consumer confidence and housing, plus Big Tech earnings, will refine the picture but the main driver remains Fed communication. UK data are quieter in the near term, so sterling trades primarily off existing prints: 3.4%–3.9% CPI, 0.4% retail sales growth and a 53.9 composite PMI.

Trading Stance On GBP/USD: Buy-On-Dips Bias With 1.38 Target And 1.36 Support

Combining price structure, macro divergence and cross-asset flows, the balance of evidence still favors GBP/USD upside. The pair has broken convincingly away from the 1.3000–1.3016 base, is consolidating around 1.3680–1.3700 with resistance at 1.3730–1.3790, and is supported by a BoE that is forced to stay restrictive while the Fed is already easing. Gold above $5,000 and yen strength confirm that safe-haven flows are not supporting the dollar. At the same time, stretched technical readings warn against chasing breakouts blindly at current levels.
Given this mix, the stance is bullish on GBP/USD, with a buy-on-dips approach preferred over buying at extremes. The key tactical idea is to accumulate longs on pullbacks into the 1.3590–1.3640 support zone, using 1.3570 and then 1.3480 as deeper reference points, and aiming for a primary upside target around 1.3800. If DXY continues to weaken and UK data stay firm, an extension toward 1.4000 is plausible over the medium term. A sustained daily close below 1.3600–1.3570, and especially under 1.3480, would undermine the bullish thesis and shift GBP/USD back into a broader 1.34–1.37 consolidation band rather than a clean upside trend.

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