The GBP/USD remained relatively stable near 1.2160 on Thursday, facing challenges in its recovery due to the resurgence of dollar strength and increasing U.S. yields, which continued to exert pressure on the pair. The action came after a notable recovery in the dollar, as multiple Federal Reserve officials reaffirmed their dedication to upholding a tight monetary policy until inflation clearly aligns with the target. The 10-year U.S. Treasury yield remained around 4.65%, providing broad support for the dollar against major currencies, as investors adjusted their expectations for early Federal Reserve rate cuts. The pound has encountered ongoing selling pressure due to weak domestic data and dovish market expectations for the Bank of England (BoE), which negatively impact sentiment. Recent figures have highlighted a downturn in the U.K. economy, with September retail sales decreasing by 0.4% and consumer inflation decelerating to 2.9%, marking the lowest level since mid-2021. The easing of price pressures has instilled confidence among traders that the Bank of England’s tightening cycle has concluded. Markets are currently anticipating approximately 60 basis points of rate cuts by mid-2026, with increasing speculation that the initial move could occur as soon as the second quarter of the upcoming year. The disparity in rate expectations between London and Washington has resulted in increased yield spreads favoring the dollar, while the pound remains close to its recent lows.
Market participants remain vigilant in monitoring U.S. data for indications that may influence the Fed’s forthcoming decisions. The forthcoming PCE inflation report, regarded as the Fed’s preferred measure of price growth, will be crucial in assessing whether policymakers can sustain their hawkish position through early 2026. A stronger-than-anticipated reading may rekindle speculation regarding another rate increase, thereby intensifying upward pressure on the dollar. On the other hand, a softer outcome could provide short-term support for GBP/USD, yet the overarching story continues to highlight U.S. strength and U.K. vulnerability. The pair is currently trading within a limited range, showing no definitive directional bias. Resistance is identified around 1.2235, which corresponds with the 50-day EMA, succeeded by levels at 1.2280 and 1.2350. A breach of these levels may redirect short-term momentum upward; however, the overall sentiment continues to be bearish as long as it remains under 1.2300.
On the downside, 1.2110 presents immediate support, succeeded by 1.2050, where buyers previously appeared during mid-September. Momentum indicators are currently subdued, as the RSI is positioned around 44 and MACD signals are flattening beneath zero. This situation confirms a lack of strong bullish participation and ongoing selling pressure during rallies. In global markets, the dollar’s renewed strength was reflected in a slight decline in risk assets, while European equity futures dipped as investors reevaluated interest rate expectations. The U.K. bond market demonstrated increasing confidence that the BoE will make a move ahead of the Fed, with the 2-year gilt yield falling below 4.3%, marking a continuation of a three-day decline. Meanwhile, the U.S. 2-year yield remained near 4.97%, highlighting the expanding policy gap that continues to influence short-term price movements in GBP/USD.
As there is minimal significant data from the U.K. scheduled until next week, market participants are directing their attention towards U.S. macroeconomic releases and insights from the Federal Reserve for guidance on market direction. Any hawkish signal from the Fed could drive GBP/USD back below 1.2100, whereas only a sustained break above 1.2250 would mitigate the bearish outlook. Currently, the pair is susceptible to downward pressure, with any upward movements expected to encounter resistance from sellers in the 1.22–1.23 range, provided that the underlying economic factors continue to support the dollar’s superior performance.