The GBP/USD pair dropped to around 1.3485 early on Monday in Europe, as demand for the US Dollar rose. However, the Bank of England’s (BoE) plan for a gradual easing of monetary policy may limit further declines for the pair. In December, the BoE lowered its benchmark interest rate by a quarter point to 3.75%. This was the first time rates were cut since last August. Governor Andrew Bailey stated that while rates might decrease further, any additional cuts will need careful thought. Meanwhile, the US Federal Reserve is expected to make two rate cuts in 2026 due to a slowing labor market. Financial markets currently predict an 18.3% chance of a rate cut by January.

Technical Analysis of GBP/USD

Technically, GBP/USD is at 1.3486, with support from the 100-day EMA, indicating a possible medium-term upward trend. Initial support is at 1.3393, and the first resistance point is at 1.3547. Bollinger Bands show ongoing bullish pressure, with potential for further movement if the pair closes above the upper band. The Pound Sterling, issued by the Bank of England, is the world’s oldest currency and makes up 12% of global forex trading. The value of the Pound is influenced by economic data, trade balance figures, and the BoE’s monetary policy. Currently, with GBP/USD trading around 1.3485, its position above the 100-day moving average suggests a positive medium-term outlook. The BoE has initiated its easing cycle by cutting rates to 3.75% in December 2025, a move anticipated following November’s inflation drop to 2.4%, nearing the BoE’s 2% target. The BoE’s cautious approach is supported by an economy showing signs of slowing. UK GDP growth for the third quarter of 2025 was nearly flat at 0.1%. Additionally, November’s retail sales figures were disappointing, showing a 0.5% decline compared to the previous month. This weak economic situation indicates that further rate cuts could happen in 2026, limiting the Pound’s potential for gains.

Outlook for the US Dollar

On the flip side, the US Dollar is under pressure from expectations of future rate cuts by the Federal Reserve, even though they haven’t started yet. The November 2025 jobs report showed a cooling labor market, with only 140,000 jobs added, and the unemployment rate rose to 4.1%. Alongside the Fed’s preferred inflation gauge falling to 2.6%, this has strengthened market predictions for at least two Fed rate cuts in 2026. For derivative traders, the key factor in the coming weeks will be the speed of rate cuts from the BoE compared to the Fed. Since the BoE has already acted, any unexpectedly weak US economic data could heighten expectations for Fed cuts and push the pair towards the 1.3547 resistance level. Using options to navigate rising volatility ahead of the January 2026 central bank meetings could be a smart strategy during this period of uncertainty. In the short term, the pair remains within a bullish channel, with technical indicators suggesting that any dips could be brief. A pullback to the 1.3393 support level might present a good buying opportunity, especially if upcoming US data confirms a softening economy. This scenario contrasts sharply with the aggressive rate-hiking period of 2022 and 2023, where monetary policy provided clear support for the Dollar. Create your live VT Markets account and start trading now.

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