During the North American session, GBP/USD held steady around 1.3380, with the British Pound moving sideways against the US Dollar. The pair could not break above the 200-day Simple Moving Average (SMA) due to strong US economic data, which limited the Pound’s gains. US economic data revealed that the Consumer Price Index (CPI) stayed at 2.7%, while the Producer Price Index (PPI) rose to 3% in November. The job market showed strength, with the Unemployment Rate at 4.4% and Initial Jobless Claims falling to 198K.

Impact Of Economic Data

These reports led to lower expectations for Federal Reserve rate cuts, which boosted the US Dollar. Consequently, the US Dollar Index (DXY) rose by 0.10% to 99.43, affecting the Pound. On the other hand, even though UK economic growth in November 2025 was better than expected, the Pound strengthened against the Euro but remained weak against the Dollar. Money markets still expect the Bank of England to cut rates two times by 2026. Looking ahead, upcoming data releases will include UK jobs and inflation numbers, while the US will release housing data and Core PCE indicators. The short-term outlook for GBP/USD suggests bearish trends, with a chance of testing the 50-day SMA and finding support levels. The heat map shows the percentage changes in major currencies, indicating that the Pound is the weakest against the Dollar but the strongest against the Euro.

Central Bank Policy Differences

The US Dollar is gaining strength because the Federal Reserve may keep interest rates high for longer. This situation pressures the British Pound, as the Bank of England is expected to lower rates twice this year. The widening gap between the central banks is the main factor influencing the GBP/USD pair. Last Friday, January 9th, the jobs report confirmed US economic strength, adding 215,000 jobs compared to expectations of 180,000. With the unemployment rate stable at 4.4% in December 2025, it becomes harder for the Fed to justify aggressive rate cuts. As a result, the Dollar Index is moving closer to its recent highs of around 99.50. Traders have reacted by cutting bets on Fed easing, and derivative markets now predict just 44 basis points of cuts for all of 2026. This is a shift from the 60 basis points expected a few weeks ago. This new pricing makes holding dollars more appealing and supports further gains. Meanwhile, the Pound lacks support despite better-than-expected UK growth figures in November 2025. The market is overlooking this, and overnight index swaps indicate a nearly 90% chance of a Bank of England rate cut by May. This expectation limits any real strength in the Pound. Given this outlook, we see potential in strategies that profit from a falling GBP/USD, such as buying put options with strike prices below 1.3300. The pair’s failure to stay above the crucial 200-day SMA at 1.3405 indicates technical weakness. The next key support level to watch is the 50-day SMA around 1.3334. We should closely monitor next week’s UK inflation data and the US Core PCE report for any surprises. Recall that during 2022-2023, a single inflation report could drastically alter central bank expectations overnight. A high UK consumer price index could swiftly challenge the bearish outlook for the Pound. Create your live VT Markets account and start trading now.

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