GBP/USD Price Forecast – Sterling Slips From 1.3566 High as Dollar Strength Targets 1.3355

GBP/USD Price Outlook – Sterling Slips From 1.3566 While USD Regains Control

GBP/USD slides from 1.3566 peak back toward 1.3376 support

GBP/USD started January on the front foot, but the momentum has reversed decisively. On 6 January the pair printed a high around 1.3566–1.3568, revisiting territory last seen in September 2025 and still well below the June spike when 1.3700 was briefly traded. Last week’s intraday high near 1.3495 failed to hold, and the market closed the week around 1.3376, effectively revisiting the band seen around 19 December. Short-term price action confirms a grinding, lower-high structure: first from 1.3566, then from the 1.3495 area, with sellers defending every test of the mid-1.35 handle. At the same time, a separate signal piece flags a drop to 1.3435 from that early-January peak, underlining how quickly intraday rallies are being sold and how heavy the pair feels above 1.3450. Even DailyForex’s speculative range of 1.32950–1.35020 for the coming week tells you where the market thinks gravity sits: rallies are capped near 1.3500, while downside probes toward 1.3350–1.3300 are now on the table.

US CPI at 2.7% headline and 2.6% core keeps USD bid against GBP/USD

On the USD side, the data backdrop does not justify a weaker dollar, and GBP/USD is paying the price. The latest US CPI release showed headline inflation stuck at 2.7% for December, while core CPI ticked down only marginally to 2.6%. That is not a backdrop that forces the Federal Reserve into urgent easing. Markets have odds of no rate cut in the January FOMC very close to 100%, and multiple Fed officials – Stephen Miran, Neel Kashkari, John Williams and Anna Poulson – are scheduled to speak again after both jobs and inflation data. The result has been a stronger USD across the board rather than the textbook “disinflation = weaker dollar” reaction. Risk-off flows after the inflation print and geopolitical headlines drove a synchronized sell-off in GBP/USD and EUR/USD, confirming that the dollar is still the defensive asset of choice. Add Trump’s push for Fannie Mae to buy $200 billion in mortgage securities, which helps pin US yields and supports the greenback, and you get a macro mix that makes it very hard for sterling to sustain levels above 1.35.

UK data, soft demand and BoE easing risk cap upside for GBP/USD

On the GBP side, the macro story remains fragile and does not justify chasing GBP/USD higher while the USD is firm. The UK is still printing “mediocre at best” numbers: employment data are due on Tuesday and CPI on Wednesday, but the starting point is weak. Recent retail indicators show households closing 2025 cautiously; consumer demand has stayed soft despite the relief that November’s Budget did not blow up gilt markets. Business surveys such as the Lloyds Business Barometer and the IoD confidence index have improved from the worst levels, but they sit close to historically weak territory and look more like a post-Budget sigh of relief than a real inflection in growth. On policy, several banks expect the Bank of England to cut rates during 2026. Rabobank explicitly frames sterling’s recent resilience as positioning rather than a structural bullish story. Danske Bank openly recommends selling GBP/EUR with a target at 1.11, while Deutsche Bank also sees GBP/EUR sliding toward 1.11 over six months. Those cross-currency calls matter for GBP/USD because they underline a common theme: UK fundamentals do not support a sustained strong pound once the Budget euphoria fades and rate-cut speculation returns.

Head-and-shoulders, channel break and 1.3355 Fibonacci level weigh on GBP/USD

The technical picture for GBP/USD has shifted from constructive to heavy in less than two weeks. On the eight-hour chart the pair has broken below the lower boundary of the previous ascending channel that started in late 2025. Since touching 1.3566 on 6 January, price has retreated to 1.3435, and that adjustment has carved out a clear head-and-shoulders reversal pattern. The neckline break comes alongside a move below the 50-period EMA, and the pair also sits under its Supertrend indicator, reinforcing the bearish bias. Fibonacci analysis from the last impulse leg points to the 38.2% retracement at 1.3355. That level is almost identical to the short-term target 1.3353 given in the DailyForex bearish setup, and it sits only around 60 pips below the recent 1.3435 print. The weekly view from another analyst pegs the short-term speculative range between 1.32950 and 1.35020, making 1.3350–1.3300 an obvious magnet if sellers stay in control. Overhead, the 1.3500–1.3565 band is now a proven supply zone: the 1.35 handle capped last week’s attempts, and the early-January high at 1.3566–1.3568 is now the reference point for any stop clusters above. As long as GBP/USD trades below 1.3500, the chart structure argues that rallies into the mid-1.34s are selling opportunities, not dip-buy zones.

GBP/USD caught between “oversold” feelings and 1.3295–1.3502 trading band

Short-term sentiment around GBP/USD is conflicted. On the one hand, both day traders and institutions see the pair as somewhat oversold after the slide from 1.3566 to the 1.3376–1.3435 region in two weeks. The current quote is roughly midway between the early-January high and December supports, and the pair has been one of the more resilient G10 currencies versus the USD over the last couple of years. That history explains why declines in sterling have been shallower than in many peers. On the other hand, the same sources warn that chasing sustained upside next week is difficult. One weekly outlook explicitly marks a probable trading band of 1.32950–1.35020, and calls for short, tactical trades rather than big directional bets. Another notes that the 1.35 level is still functioning as a cap and that the US dollar is strengthening against multiple currencies simultaneously. Combine these with the head-and-shoulders structure and the break of the rising channel, and the message is clear: GBP/USD is not collapsing, but the path of least resistance for the next leg is still lower within that 1.33–1.35 corridor.

Geopolitics, Davos risk and safe-haven USD flows shape GBP/USD downside bias

Event risk over the next days heavily favors the USD leg of GBP/USD. Tensions around Iran, which pushed crude and risk assets around earlier in the month, have not disappeared, even if the immediate risk of US strikes has been talked down. At the same time, Trump’s rhetoric on tariffs – including threats toward European countries over the Greenland episode – has re-introduced trade-war style headline risk. He is scheduled to speak at the Davos summit this week. A calm, policy-heavy speech that avoids new tariff threats could ease risk aversion, but his history suggests the opposite is just as likely. Markets have already seen how quickly comments about Greenland and tariff escalation against Europe can trigger a flight to safety. When that happens, the USD strengthens and GBP/USD gets pushed lower alongside EUR/USD and high-beta crosses such as AUD/USD. Layer on top the Middle East risk premium, the debate between Trump and Fed Chair Jerome Powell over rates, and US macro releases like PPI and retail sales, and you have a calendar where the surprises skew toward USD strength, not weakness.

Cross-currency views: EUR/GBP, bank targets and what they imply for GBP/USD

The broader cross-currency landscape also leans against a bullish GBP/USD stance. EUR/GBP closed last week around 0.8669, near levels last seen in early autumn, after a steady unwind of short-sterling positions built before the UK Budget. Rabobank sees that pullback in EUR/GBP as mostly position-driven and expects the cross to edge higher as 2026 progresses, effectively implying a softer pound. RBC notes that GBP/EUR is trading close to four-month highs and projects modest downside toward 1.1360 by the end of 2026. Danske recommends selling GBP/EUR with a target of 1.11, and Deutsche Bank also has GBP/EUR 1.11 in six months. These calls share a single message: relative growth and policy dynamics favor the euro over sterling once the short-term Budget relief fades. On GBP/USD specifically, UoB’s year-end projection at 1.27 signals that at least one major bank sees room for the pair to trade roughly 600–700 pips below current 1.33–1.34 levels by late 2026. UBS is the notable upside outlier, advocating a GBP/USD 1.40 call structure, which effectively treats dips as an opportunity to buy long-dated upside optionality rather than spot. Taking these together, the consensus picture is not one of imminent sterling collapse, but it is clearly not a structural bull case for GBP/USD at 1.34–1.35 either.

Trade setups around GBP/USD: tactical ranges and key levels to watch

Signal providers and discretionary analysts are broadly aligned on how to trade GBP/USD in this environment. One explicit strategy suggests a bearish stance: sell GBP/USD with a take-profit at 1.3353 and a stop-loss at 1.3550, with a 1–2 day timeframe. That structure uses the recent 1.3566 high as the outer risk boundary and aims for the 1.3350 Fibonacci area as the next destination. The alternative bullish setup is symmetric: buy GBP/USD, target 1.3550 and stop at 1.3350, but the underlying tone of both the technical and macro commentary favors the short side until something material changes in either US data or UK growth. A separate weekly call frames 1.32950–1.35020 as the likely speculative band, again implying that fades near 1.35 and reloads around 1.33 will dominate. Intraday traders are advised to treat 1.35 as the first serious resistance, with 1.3435, 1.3495 and 1.3566–1.3568 as intermediate reference points for supply, while 1.3355–1.3353, 1.3295 and then the broader 1.3200 area sit as the next demand zones if the downside accelerates.

GBP/USD verdict – bias remains bearish, prefer sell rallies below 1.3500

Putting all of this together – the drop from 1.3566 to 1.3376, the head-and-shoulders break below the rising channel, the 38.2% retracement target near 1.3355, US CPI at 2.7% headline and 2.6% core, Fed cut odds near 0% for January, UK growth still soft, BoE easing risk, Rabobank and Danske leaning against sterling in EUR/GBP, UoB flagging 1.27 for GBP/USD by end-2026 and UBS only expressing GBP upside via a 1.40 call – the balance of evidence points to a bearish / sell stance on GBP/USD at current levels. Below 1.3500, rallies into the 1.3430–1.3495 band are better treated as opportunities to add shorts with targets at 1.3355–1.3353, then 1.3295, rather than as a base for fresh longs. Only a sustained daily close back above 1.3550–1.3566, combined with a clear shift in US data or Fed guidance, would justify upgrading that view toward hold or buy. Until then, the smartest play is to respect the downside, trade the 1.32950–1.35020 range from the short side, and let the numbers – not emotion – dictate the bias.

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