The GBP/USD rate has dropped over 0.50%, now at 1.3367, as the US Dollar (USD) gains strength due to strong economic data. US jobless claims fell to 198K, lower than the expected 215K, and manufacturing indexes showed better-than-expected growth. The US Dollar Index (DXY) reached a six-week high, up by 0.33% to 99.38. This increase is happening as financial markets adjust their predictions for less easing from the Federal Reserve, reducing the expected cuts from 52 to 48.5 basis points.

UK GDP Exceeds Expectations

The UK GDP grew by 0.3% in November, surpassing forecasts, but this did not change expectations for rate cuts by the Bank of England. The UK market is quiet, and US investors are waiting for upcoming industrial production data and comments from Federal Reserve officials. Technically, the GBP/USD has dipped below its 200-day Simple Moving Average of 1.3395, indicating a possible further decline towards the 50-day SMA at 1.3313. Resistance may appear again at the 200-day SMA, with additional resistance at 1.3400 and 1.3451 if those levels are reached. The US Dollar is gaining ground because of a strong American economy, which is pushing the Pound sterling lower. In the first week of January 2026, US jobless claims were 205,000, significantly below forecasts, showing that the labor market remains tight. This strength is prompting traders to reconsider how quickly the Federal Reserve might cut interest rates this year. This situation starkly contrasts with the United Kingdom, where the economy is showing signs of slowing down. The latest monthly GDP figures for November 2025 revealed only 0.1% growth, while inflation data from December fell to 3.1%, reducing pressure on the Bank of England. This difference in economic performance is a key factor we’re monitoring.

Adjustments in Futures Markets Pricing

As a result, futures markets are now expecting only about 40 basis points of rate cuts from the Fed for all of 2026, down from 60 just weeks before. In contrast, the market anticipates nearly 75 basis points of cuts from the Bank of England during the same time frame. This widening policy gap makes holding dollars more appealing than holding pounds. We observed a similar trend in early 2025 when a series of strong US factory and job reports triggered a dollar rally. History shows that when US economic data consistently exceeds expectations, markets quickly readjust their views on central bank policies. This seems to be happening again, creating a clear downward trend for GBP/USD. From a technical viewpoint, the GBP/USD pair recently fell below its 50-day moving average around 1.2580, which many traders see as a bearish signal. The trend appears to be downward, with the next significant support level around 1.2450. The Relative Strength Index indicates increasing downward momentum. In the upcoming weeks, we suggest traders consider strategies that could benefit from a further decline in the GBP/USD exchange rate. This might include buying put options to protect against downside risks or directly selling futures contracts to take advantage of the trend. Watching the upcoming US industrial production data and Fed officials’ speeches will be crucial for confirmation. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now