The GBP/USD pair maintains strong momentum, having rallied from last week’s low of 1.3100 to currently hover around 1.3239, approaching short-term resistance near 1.3250. The pound has shown resilience, supported by a combination of domestic fiscal confidence, a rise in investor sentiment following the budget, and a decline in U.S. dollar strength as the Federal Reserve approaches its December policy meeting. As of late London trading, GBP/USD is positioned around 1.3240, reflecting an increase of 0.32% for the day, marking five consecutive daily gains, the longest winning streak observed since September. The near-term trajectory of the currency pair is now dependent on the dynamics between the Bank of England’s cautious policy stance and the increasing belief that the Fed will implement another rate cut in two weeks. The surge in the pound commenced right after the UK Chancellor unveiled the budget, which helped to stabilize gilt markets and renewed confidence in the fiscal outlook of Britain. The GBP/USD pair momentarily reached a four-week peak of 1.3260 before stabilizing near 1.3220, and the market perceived the government’s measured approach—steering clear of both austerity and rampant spending—as an indication of fiscal responsibility, alleviating pressure on the Bank of England.
UK bond yields held firm, with foreign investors returning to gilts after a prolonged period of outflows, further bolstering sterling’s strength. Standard Chartered indicates that current conditions may allow GBP/USD to move towards 1.34 in December, depending on a dovish pivot from the Federal Reserve. The broad retreat of the U.S. dollar has significantly enhanced the upside potential for GBP/USD. The DXY index fell below 100.20, declining almost 1.4% for the week as market participants priced a 75–80% chance of a December rate cut. Federal Reserve officials, including New York Fed President John Williams, have openly supported additional easing measures, pointing to declining inflation and weakening labor data. The October CPI reading at 2.8% and non-farm payrolls increasing by only 155,000 strengthened expectations of a more accommodative policy shift. While the Fed’s rate cuts aim to support slowing growth, they simultaneously diminish dollar yields, encouraging traders to rotate into higher-yielding currencies such as GBP.
Historically, during comparable easing cycles in 2019 and 2023, GBP/USD advanced 4–6% over the subsequent month, suggesting potential continuation toward 1.3350–1.3400 if policy divergence widens further. The Bank of England remains cautious as inflation persists, with October CPI at 4.1%, still double the 2% target. However, sluggish economic growth—Q3 GDP at only 0.1% and the OBR sharply reducing 2026 growth forecasts to 0.8%—has heightened pressure for a rate cut. Markets currently estimate a 65% probability that the BoE will lower its policy rate to 3.75% in December. Nevertheless, policymakers such as Governor Andrew Bailey maintain a hawkish tone, indicating that cuts will be “gradual and conditional.” This careful stance has unexpectedly supported sterling, as investors see the BoE shifting more cautiously than the Fed. The divergence underscores medium-term support for GBP/USD above 1.3180, with 1.3300 resistance posing the immediate barrier ahead of the December central bank meetings. The daily chart for GBP/USD reflects a firm uptrend that commenced after October’s oversold lows near 1.3000. Momentum indicators signal strength, with the RSI at 64 below overbought territory and the MACD histogram displaying consistent positive bars above zero. Price action remains firmly above the 20-day EMA (1.3186) and the 50-day EMA (1.3124), highlighting the strength of the current base. Immediate resistance lies at 1.3250–1.3300, where mid-August support has now become resistance. A clear break above 1.3310 would open the path toward 1.3385. Support levels remain at 1.3180, 1.3140, and 1.3115. The latest U.S. macroeconomic indicators continue to suggest a slowdown: the ISM manufacturing index contracted for the ninth straight month at 47.1, jobless claims climbed to 243,000—the highest since March—and retail sales growth slowed to 0.2%, indicating weakening consumer momentum. These data support the growing view that the Federal Reserve will need to implement deeper easing in 2026.
Consequently, U.S. 10-year Treasury yields declined to 3.84%, the lowest since July, reducing the yield premium that had previously supported the dollar. The correlation between yield differentials and GBP/USD stands at a strong 0.82 over the past year, implying additional dollar weakness could easily drive the pair toward the mid-1.33s. While short-term optimism prevails, structural issues continue to limit sterling’s long-term potential. Productivity growth remains weak, real wages lag inflation, and the fiscal deficit for 2025–26 is expected to reach £104 billion. Business investment remains subdued and has yet to recover to pre-Brexit levels, while the services sector—80% of UK GDP—shows stagnation and the manufacturing PMI remains below 50. These macro headwinds imply that GBP/USD rallies beyond 1.3400 may struggle to maintain momentum without improvements in domestic fundamentals. CFTC data shows speculative net longs in the pound rising to +38,000 contracts, the highest since August 2023, reflecting strong bullish conviction but also raising the risk of profit-taking near 1.3300.
The recent five-day rally has begun to lose momentum, with intraday volume reflecting caution among new buyers ahead of key central bank decisions in December. Implied volatility on one-week GBP/USD options has fallen to 7.8%, suggesting expectations of range-bound trading between 1.3220 and 1.3270 next week. Traders favor short-dated call spreads toward 1.3300, aligning with UOB Group’s projection that sterling could encounter resistance before entering consolidation. Longer-term hedgers are using put spreads near 1.3100, corresponding to the foundation of the ongoing uptrend. As GBP/USD gains attention, GBP/EUR remains steady around 1.1680, while GBP/JPY holds above 197.50, signaling broad G10 currency strength for sterling. The contrast between a dovish Federal Reserve and a cautious Bank of England enhances the pound’s appeal relative to the euro and yen. Overall, GBP/USD continues to draw support from monetary policy divergence, fiscal credibility, and the weakening U.S. dollar. A sustained break above 1.3300 could accelerate gains toward 1.3385–1.3400, while a failure to hold 1.3180 may trigger a retracement toward 1.3100; given current positioning, macro divergence, and technical structure, the bias remains constructively bullish approaching the December rate meetings.