The GBP/USD currency pair is on an upward trend for the second day in a row, mainly because the US Dollar is getting weaker. The pair is moving towards the 1.3500 level, which is the highest point since early October. This positive movement is supported by a solid technical outlook, as it has broken above the 100-day Simple Moving Average and gone past the 61.8% Fibonacci retracement level. The Moving Average Convergence Divergence (MACD) indicates that momentum is slowing down a bit. However, if the pair stays above 1.3500, it could move towards 1.3600. The 100-day SMA serves as initial support, while the Relative Strength Index (RSI) at 68 suggests that gains may be limited without new market drivers. Staying above the 61.8% retracement level keeps the buyers in control.

The Pound Sterling As A Global Force

The Pound Sterling, the currency of the UK, makes up 12% of global foreign exchange transactions, averaging $630 billion each day. Its value mostly depends on the Bank of England’s monetary policy, which aims for a 2% inflation rate. Economic indicators like GDP, service PMIs, and the trade balance also influence its strength. A robust economy can strengthen the Sterling by allowing for potential interest rate hikes. The GBP/USD pair is gaining strong momentum as it approaches the key 1.3500 level. This strength is largely due to a weakening US Dollar, particularly after November’s Core PCE inflation data showed a slightly lower-than-expected rate of 2.8%. This information increases expectations that the Federal Reserve will take a more cautious approach into 2026. Conversely, the Bank of England’s hawkish stance supports the Pound. Recent data showed that UK retail sales unexpectedly jumped by 1.2% month-over-month in November, reflecting strong consumer demand during the holiday shopping season. This positive domestic activity gives the BoE little reason to change its focus on controlling inflation. For traders, this situation suggests considering bullish strategies in the coming weeks. Buying call options with strike prices at or above 1.3500 could capture a possible breakout, while selling out-of-the-money put options could take advantage of solid support around 1.3370. This strategy aligns well with a technical approach of buying during any dips.

Year-End Trading Considerations

It’s important to remember that trading volumes will be lower as we near the end of the year. This reduced liquidity can cause sharper price movements, meaning a break above 1.3500 could happen quickly. While the RSI is close to overbought levels at 68, the strong underlying fundamentals seem capable of keeping the rally going. This situation is similar to market conditions we observed in late 2023 when a divergence between the Federal Reserve and the Bank of England led to a multi-week rally in the GBP/USD pair. Back then, key technical level breakthroughs also preceded sustained increases into the new year. History shows that such fundamental drivers can create ongoing trends that continue into the first quarter. Create your live VT Markets account and start trading now.

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