GBP/USD Price Forecast - Pound Tests 1.3869 Peak as Fed Pause and Weak DXY Fuel 1.40 Target

GBP/USD – Four-Year Highs Under Fed Pressure: Bullish Trend With Overbought Risk

GBP/USD price action: four-year top at 1.3869, support building around 1.3700–1.3800

GBP/USD has just printed a four-year high at 1.3869 before slipping back toward 1.3790–1.3800. The pair broke decisively above the 1.3630–1.3710 resistance band and turned that zone into support, which is classic trend-extension behavior. Price is holding above a rising channel and trades well above the 50-day EMA and 200-day EMA near 1.3445, confirming a medium-term uptrend rather than a short squeeze. The recent pullback from 1.3869 to the 1.3790–1.3800 area is more consistent with profit-taking than with a structural reversal, as the broken supply zone around 1.3800 is now acting as a first line of demand.

Macro drivers around GBP/USD: Fed at 3.50%–3.75% with asymmetric risk to the downside for USD

On the US side, the policy rate is parked in the 3.50%–3.75% range and futures markets assign roughly a 95% probability that the decision stays unchanged at this meeting. At the same time, swaps are still pricing around 40–45 bps of easing further out in the curve. That combination leaves USD in a weak structural position: restrictive current policy, slowing marginal data, and a market that expects the next meaningful step to be cuts. The latest ADP 4-week employment average at 7,750 jobs versus 8,000 previously reinforces the picture of moderate, not booming, growth and keeps the door open for more accommodation later in 2026. For GBP/USD, that means any neutral or mildly dovish message from the Fed tends to push the pair back toward and above 1.3869 rather than knock it out of the uptrend.

US Dollar structure: DXY breakdown below 97.50 amplifies upside potential in GBP/USD

The broad dollar gauge is trading around 96.10 after failing at the top of a multi-month symmetrical triangle and breaking below trendline support near 97.50. Price sits below the 50-day moving average, with the 200-day around 99.50 now acting as a ceiling. The index is testing the 61.8% retracement region near 95.60 with scope toward 95.00–94.80 if selling resumes. The RSI has dropped under 30, signaling strong downside pressure rather than a calm consolidation. For GBP/USD, a DXY profile that cannot hold 97.50 and stays pinned in the mid-96s is a direct tailwind, supporting the case for 1.3900–1.4000 as long as UK data and risk sentiment do not break down.

Fed independence, political risk and the governance premium in USD pricing

Dollar weakness is not only about rates; governance risk is now a factor. Tensions around central bank independence and political pressure on the Fed chair are being priced as a “governance premium” against USD. Markets see the risk that future policy becomes more politically driven, especially as the administration criticizes the current chair and openly hints at a more dovish replacement when the term expires in May. At the same time, trade rhetoric remains unstable: threats of 100% tariffs on Canadian goods if Ottawa signs a deal with China, combined with domestic unrest after a second fatal shooting in Minneapolis and renewed talk of a potential Department of Homeland Security funding impasse, all feed into a risk profile where investors reduce long-dollar exposure. That backdrop supports carry-positive alternatives such as GBP and helps keep GBP/USD elevated near multi-year highs.

UK side of the equation: 0.4% retail sales, 2.1% inflation and a less aggressive BoE easing path

The UK leg of GBP/USD is not doing the heavy lifting alone, but it is clearly not a drag. December retail sales rose 0.4%, easing recession fears and signaling that UK households are coping with high borrowing costs better than expected. Headline inflation around 2.1% keeps price growth near the target, reducing the urgency for deep rate cuts. Markets have started to dial back expectations for an aggressive easing cycle from the Bank of England and are entertaining a slower, more data-dependent path. That repricing supports UK yields relative to US yields, especially when the Fed is seen closer to the cutting phase. As a result, GBP retains a yield advantage in the near term, reinforcing support levels in GBP/USD around 1.3700–1.3710 and helping justify attacks on the 1.3869 high.

Risk-on backdrop: S&P 500 above 7,000, gold at records, pressure on USD haven status

The global risk backdrop is constructive for high-beta currencies and negative for USD as a defensive asset. The S&P 500 has pushed above the 7,000 mark, confirming the equity market’s risk-on stance. Gold has traded above $5,300 per ounce before a pullback, and the yen has firmed as another alternative risk hedge. With gold and JPY absorbing part of the defensive demand and equities surging, USD loses some of its traditional safe-haven bid. Against that backdrop, currencies backed by improving domestic data and relatively attractive yields, such as GBP, benefit. This macro mix is consistent with GBP/USD holding 1.3700–1.3800 and attempting to extend toward 1.3900 and 1.4000 rather than collapsing back toward 1.34–1.35.

GBP flow landscape: weekly strength, intraday softness and what the heatmaps really show

Currency performance tables show a nuanced picture. Over the week, GBP has been the strongest against USD, with gains of roughly 0.74%, while also outperforming EUR and JPY on a multi-session horizon. Intraday, however, the pound has been the weakest against the dollar, with a daily change around -0.29%, as traders lock in profits near 1.3860–1.3869 ahead of the Fed. That combination—weekly outperformance and intraday pullback—is typical of a trend market undergoing a positioning clean-up rather than a reversal. Short-term traders are trimming longs near four-year highs, but structural long-only and macro funds still favor GBP/USD upside as long as the pair holds above the key breakout band around 1.3630–1.3710.

Technical structure in GBP/USD: rising wedge, overbought RSI and the 1.4000 extension zone

Technically, GBP/USD remains in a rising structure but is no longer cheap. On the daily chart, price is trading within a rising wedge, with immediate resistance at the four-year high of 1.3869 and then the round 1.3900 level. A clean break through 1.3900 opens a path toward 1.3940 and 1.4030, and beyond that toward the distant 1.4248 high from April 2018. On the downside, the first important support zone sits around 1.3800 (prior resistance turned support), followed by 1.3710–1.3700 and the January 26 low at 1.3643. Deeper in the structure, the nine-day EMA around 1.3626 and the lower wedge boundary near 1.3570 define the line where the immediate bullish bias would start to erode, while the 50-day EMA near 1.3445 is the medium-term trend floor. The 14-day RSI at about 73.9, after cooling from 78.5, confirms overbought conditions: momentum is positive but stretched, which argues for dip-buying rather than chasing every new high.

Interaction with the US Dollar Index: DXY at 96.10 and the GBP/USD sensitivity band

With the dollar index holding around 96.10 after breaking 97.50, GBP/USD is sitting in a sensitivity band where each 1-point move in DXY can produce outsized swings in cable. If DXY extends lower toward 95.60 and 95.00, the probability of GBP/USD breaking and holding above 1.3869 rises materially, making a test of 1.3940–1.4000 more likely. Conversely, a short-squeeze rally in the dollar index back toward 97.50–98.40 on a hawkish surprise from the Fed would be enough to knock GBP/USD back into the 1.3640–1.3710 region without breaking the broader uptrend. The key point is that current DXY levels still favor sterling, and the burden of proof is on USD bulls to reclaim the 97.50–98.00 area before they can seriously threaten the cable rally.

Event risk: FOMC, Powell’s tone and the path for GBP/USD into 1.3869–1.4000

The immediate catalyst is the Fed decision and, more importantly, the press conference. A straightforward hold at 3.50%–3.75% combined with language that acknowledges softer data and keeps the door open for two rate cuts in 2026 would likely extend the “Sell America” theme. Under that scenario, GBP/USD has room to retest 1.3869, challenge 1.3900, and potentially probe 1.3940–1.4000 as traders lean into the idea of a more dovish Fed against a still-cautious BoE. The opposite risk is clear: if Powell emphasizes resilience in the labor market, downplays political noise, and signals no urgency to cut, the dollar can squeeze higher. In that case, a slide in GBP/USD toward 1.3710, 1.3643 and even 1.3570 is realistic, especially with RSI already overbought. As long as those pullbacks hold above the 50-day EMA at 1.3445, they remain corrections inside a bullish trend rather than trend reversals.

GBP/USD stance: directional view, levels to watch and verdict (buy, sell or hold)

Taking the macro, politics, flows and technicals together, the structure around GBP/USD is still bullish but extended. The pair is trading above every key moving average, has broken a multi-month resistance band at 1.3630–1.3710, and is supported by a structurally weak dollar index around 96.10 with downside risk toward 95.60. UK data—0.4% retail sales growth and inflation near 2.1%—justify a less aggressive BoE easing path and keep the yield advantage tilted toward sterling. The main risk is not that the story is wrong, but that positioning and RSI are stretched near 1.3869, making the entry point sensitive to any hawkish surprise from the Fed.
On that basis, the directional verdict on GBP/USD is bullish – effectively a Buy on dips, not a fresh chase at the very top. Pullbacks into the 1.3710–1.3750 zone are more attractive accumulation areas than buying breakouts through 1.3900. The bullish view only starts to lose credibility on sustained trade below 1.3570 and would be considered broken if price closes under the 50-day EMA around 1.3445. As long as the pair stays above those levels and the dollar index remains capped under 97.50, the bias remains for GBP/USD to eventually retest 1.3869, probe 1.3940 and attempt the 1.4000 handle.

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