GBP/USD dropped from its October highs, trading around 1.3478 after peaking at 1.3518 earlier this month. Mixed U.S. economic data led to limited movement in the Dollar. In the third quarter, the U.S. economy grew at an annual rate of 4.3%, which was better than the anticipated 3.3%. The GDP Price Index rose by 3.7%, above the expected 2.7%. Core PCE increased by 2.9%, matching forecasts, while overall PCE prices grew by 2.8%.

Durable Goods Orders Fall Short

Durable Goods Orders fell by 2.2% in October, missing the 1.5% forecast. This was a decline from the 0.7% gain in September. When excluding transportation, orders grew by 0.2% in October but fell short of the 0.3% prediction. Industrial Production decreased by 0.1% in October but rebounded by 0.2% in November, exceeding the 0.1% forecast. U.S. Consumer Confidence dropped to 89.1 in December, which was lower than the expected 91.0, though it was an improvement from the revised November figure of 92.9. The U.S. Dollar remains under pressure, even with some recovery. Long-term market expectations suggest more monetary easing by the Federal Reserve by 2026. The heat map shows percentage changes of the U.S. Dollar against major currencies. The British Pound has pulled back from recent highs against the U.S. Dollar, trading around 1.3478 after struggling to stay above 1.3500. This slight strength in the Dollar follows a strong Q3 GDP report, showing 4.3% growth, overshadowing weaker reports like durable goods orders. However, the overall economic picture is mixed, with December’s consumer confidence also coming in below expectations.

Monetary Policy Outlook

The market’s key focus is now on the Federal Reserve’s actions until 2026, with significant easing already expected. Recent inflation reports support this, as the November 2025 Consumer Price Index showed a cooling trend, with the annual rate falling to 3.1%. This steady decline toward the Fed’s 2% target suggests that rate cuts are likely, making this temporary dollar strength a potential buying opportunity. Conversely, the UK faces persistent inflation. The latest November 2025 CPI data remained steady at 3.9%, nearing double the Bank of England’s target. This difference suggests the Bank of England will be slower to cut rates compared to the Federal Reserve, providing a supportive environment for GBP/USD in the coming weeks. Due to lower trading volumes typical during the holiday season between Christmas and New Year’s, we can expect sharp, sudden price changes. Buying options could be a smart way to manage risk; for example, purchasing call options on GBP/USD would allow for profits from potential price increases while limiting losses. Current implied volatility is moderate, indicating options aren’t excessively pricey at this time. Recent data from the Commodity Futures Trading Commission shows that speculative traders are increasing their long positions in the pound. This indicates that larger market players share our positive outlook and are using current dips as opportunities to buy in. Therefore, a drop below 1.3450 could be a good entry point for long futures contracts. We’ve seen a similar pattern before, especially at the end of 2023 when the U.S. Dollar Index fell over 4% in the last two months as the market began pricing in Fed rate cuts. That time was marked by weak survey data and cooling inflation outpacing any economic strength. History suggests that a broader trend of dollar weakness is likely to resurface in the upcoming weeks. Create your live VT Markets account and start trading now.

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