GBP/USD Price Forecast: Sterling Defends $1.35 as Dollar Index Loses Momentum

GBP/USD Price Forecast: Sterling Holds Above $1.35 While Dollar Index Stalls Near 97.95

GBP/USD and DXY: Diverging Channels Define the Current Price Landscape

GBP/USD is trading around $1.3501, holding Wednesday’s close into the December 25 holiday and preserving a clean ascending channel that has guided the uptrend since late November. At the same time, the US Dollar Index near 97.95 remains trapped in a descending channel that has capped every bounce since mid-November. DXY is trading below both the 50-day and 200-day EMAs, with former support near 98.10 now acting as resistance and repeatedly attracting sellers on pushes back into that zone. This split structure—bullish GBP/USD, bearish DXY—tilts the balance in favour of further sterling strength as long as the pair stays above $1.3470–$1.3480 and comfortably above the rising 200-EMA near $1.3330.

GBP/USD Intraday Trend: Shallow Pullbacks Inside an Ascending Channel

On the 2-hour chart, the latest pullback from the $1.3535–$1.3540 area has been shallow, with small-bodied candles and limited downside follow-through that signal consolidation rather than distribution. GBP/USD continues to trade above the 50-EMA, while the 200-EMA trends higher below $1.3330, confirming a persistent bullish bias. The prior resistance band at $1.3470–$1.3480 has flipped into short-term support, and RSI has eased from overbought readings near 70 toward roughly 55, indicating cooling momentum but no bearish reversal. That combination favours dip-buying around $1.3475 with upside scope toward $1.3580 initially, provided the dollar remains capped.

GBP/USD Recovery Path: From Low $1.30s to the Mid-$1.35 Zone

On a broader horizon, GBP/USD has staged a controlled recovery from the low-$1.30s seen in the autumn. Monthly averages near 1.3149 in November and spot levels around 1.3344 heading into Christmas have now given way to prints around $1.3501 on the short-term charts. This stepwise climb reflects a re-pricing of both UK and US monetary policy rather than a one-off squeeze. Earlier in the quarter, the pair was closer to $1.24 as traders discounted the UK’s growth outlook and worried about entrenched inflation. The shift into the mid-$1.30s shows that sterling has been re-rated upward against a dollar now priced for easing rather than further aggressive tightening.

USD Backdrop: DXY at 97.95 as Fed Easing in 2026 Caps Dollar Upside

The US Dollar Index hovering near 97.95 is constrained by expectations for roughly two Federal Reserve rate cuts in 2026. This is happening even after yields rebounded, with the 2-year Treasury around 3.53% and the 10-year near 4.16%. Markets are effectively signalling that while US growth is resilient, the tightening cycle is mature and the next major step is lower, not higher, for policy rates. That outlook caps sustained strength in USD and supports higher-beta crosses like GBP/USD, where investors are more willing to rotate out of dollar cash into currencies offering better carry and mean-reversion potential after deep underperformance.

USD Data vs USD Price: 4.3% GDP and 2.9% Core PCE Without a Fresh Dollar Squeeze

Recent US macro data remain strong but no longer deliver the same upside shock for the USD. Preliminary Q3 GDP printed at 4.3% annualized, while core PCE rose 2.9% quarter-on-quarter, roughly matching expectations and staying above but not breaking away from the Fed’s target. Non-farm payrolls have continued to show solid job creation. This combination justifies a cautious Fed but does not revive the inflation panic that underpinned the prior dollar bull run. For GBP/USD, that means the dollar can stay supported, yet the impulse for a renewed broad USD surge is absent, leaving room for sterling to extend gains inside its uptrend channel.

GBP/USD Versus EUR/USD: Sterling Outpaces the Euro in the Dollar Repricing

Cross-currency dynamics confirm that sterling has been the stronger leg. EUR/USD climbed into the $1.17–$1.18 zone on the 2-hour chart, holding near $1.1779 after an orderly pullback from $1.1805, with support at $1.1745–$1.1750 and both 50- and 200-EMAs sloping higher. Earlier in the month, the pair traded closer to 1.0850 as German data started to improve. Over roughly the same period, GBP/USD moved from around $1.24 toward $1.35, signalling a more pronounced re-rating in favour of sterling than of the euro. That performance gap underscores that markets are unwinding earlier extreme pessimism on the UK more aggressively than they are repricing the Eurozone.

GBP/USD Within Global FX: Yen, Aussie and Loonie Highlight a Softer USD Regime

The broader FX tape still points to a capped USD, which indirectly supports GBP/USD. USD/JPY trades near 149.50 as investors weigh the possibility of further Fed hikes against a cautious Bank of Japan, but the pair has stopped printing new extremes, suggesting the most aggressive phase of dollar appreciation versus the yen may be over. AUD/USD has firmed toward 0.6500 on better commodity pricing and improved Chinese demand, while USD/CAD has pushed up near 1.3600 amid weak Canadian employment data and softer oil. This mixed but generally USD-capped backdrop favours further GBP/USD upside as long as UK-specific risks do not intensify.

GBP/USD and Bank of England: Easing From 3.75% with Inflation Still Above 3%

The Bank of England has started to edge away from peak tightening, cutting the Bank Rate by 25 bps to about 3.75% as UK annual inflation cooled toward 3.2% from roughly 3.6%. Inflation has more than halved from its extremes but remains above target, leaving the BoE in a different position from the Fed: already easing, but from relatively high levels. For GBP/USD, that matters for carry. A BoE that moves slowly, with real rates marginally positive, provides a floor under sterling, particularly against a dollar priced for a more substantial 2026 cutting cycle, while still allowing UK rates to stay meaningfully restrictive compared with prior cycles.

GBP/USD and UK Macro Risk: From Crisis Discount to Normalised Trading Behaviour

Earlier in the year, high UK inflation and aggressive tightening caused sterling to trade like a problem currency, with GBP/USD briefly sliding toward $1.24 as markets feared that higher rates would crush domestic demand and amplify fiscal stress. The latest configuration—spot around $1.3501, inflation near 3.2%, policy at 3.75%—shows a different regime. Sterling no longer trades with a persistent crisis discount; instead, it responds to classic drivers: rate differentials, growth prospects, and risk sentiment. That shift means dips into the low-$1.34s and especially toward the 200-EMA near $1.3330 are more likely to draw in buyers than trigger forced liquidation, barring a sharp negative UK shock.

GBP/USD and Eurozone Signals: Modest Eurozone Growth Adds Another Headwind for USD

Eurozone macro data also influence GBP/USD via the dollar leg. Preliminary figures showing Eurozone GDP up about 0.2% quarter-on-quarter indicate resilience rather than contraction, helping EUR/USD hold its ascending channel. With both EUR/USD and GBP/USD grinding higher, it becomes increasingly difficult for DXY to stage a durable recovery. Weakness in the dollar against multiple majors reinforces the idea that rallies toward the 98.10 resistance band in the index remain selling opportunities. For GBP/USD, that backdrop validates a strategy of favouring sterling strength as long as the UK avoids new domestic shocks and global risk sentiment stays broadly constructive.

GBP/USD and Japanese Data: Tokyo CPI, Activity and Global Risk Appetite

Upcoming Japanese data—Tokyo core CPI expected near 2.5% versus 2.8%, unemployment around 2.6%, industrial production seen down about 1.9%, and retail sales growth slowing toward 0.9%—will feed into global risk appetite once markets reopen after the holiday. Slightly weaker Japanese activity and moderating inflation are consistent with a soft-landing narrative rather than a hard-landing shock. For GBP/USD, that environment typically supports risk-sensitive currencies, including sterling, particularly when global equity benchmarks trade near highs and credit spreads remain contained. A stable macro backdrop reduces safe-haven demand for USD and encourages continued participation in higher-beta FX trends.

GBP/USD Positioning: From $1.2400 Stress Levels to $1.3501 Consolidation Zone

Positioning and price behaviour show a clear turn from stress to consolidation. When GBP/USD traded near $1.2400, the market was heavily focused on UK inflation and growth risks, and speculative positioning leaned bearish. The current environment, with price stable around $1.3501 inside an ascending channel, suggests that structural shorts have been reduced and positioning is more balanced. Fast-money accounts are trading the channel, while real-money investors appear more willing to rebuild exposure on dips. That change raises the risk of upside extensions if fresh data or central-bank communication undercuts the dollar further or validates the view that the BoE will remain tighter than peers for longer.

GBP/USD Key Technical Levels: Support at $1.3470 and $1.3330, Resistance Above $1.3540

Technically, the critical areas for GBP/USD are well-defined. On the downside, $1.3470–$1.3480 forms the first support zone, combining a horizontal level with the lower edge of the short-term ascending channel. Beneath that, the rising 200-EMA around $1.3330 marks the boundary between a normal correction within an uptrend and a deeper structural breakdown. On the upside, the recent cap at $1.3535–$1.3540 is the first resistance band; a decisive break and hold above that area would confirm renewed momentum and open the way toward $1.3580 initially. Further gains become more likely if DXY fails at 98.10 again and slips through support in the 97.70–$97.75 zone toward the 97.30 objective implied by the dollar’s descending channel.

GBP/USD Trading Stance: Bullish Bias, Buy on Dips While DXY Stays Below 98.10

With GBP/USD trading near $1.3501 inside a rising channel, DXY stuck around 97.95 below key resistance at 98.10, Fed policy priced for 2026 cuts despite 4.3% US GDP and 2.9% core PCE, the BoE easing only cautiously from 3.75% while inflation hovers near 3.2%, and broader FX showing a capped dollar against EUR, JPY, AUD, and CAD, the balance of evidence supports a bullish stance on sterling against the dollar. The preferred strategy is Buy-the-dip rather than Sell-the-rally, with accumulation zones around $1.3475 and deeper interest near $1.3330, and upside focus on $1.3580 and potentially higher highs as long as DXY remains contained below 98.10 and the UK data do not deliver a negative surprise that breaks the current trend structure.

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