- The GBP/USD price analysis suggests a bullish pound amid the data divergence between the US and the UK economies.
- Higher UK inflation could restrain the BoE from hikes at the Feb meeting, while the Fed’s two rate cuts are already priced in by the markets.
- Traders are focusing on the FOMC meeting, with attention on Powell’s statement for clues on future policy guidance.
The GBP/USD price remains choppy under 1.3700, the highs marked since mid-September 2025. The key catalyst behind the rally is diverging macroeconomic data from the UK and the US, which favor the pound. December retail sales in the UK rose 0.4% from the previous month. This came after a drop in November. Core retail sales, excluding petrol, also beat expectations. The Composite PMI hit 53.9, the highest level in 21 months, indicating that all sectors are growing rapidly.
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Inflation remains high, as the December CPI remained at 3.9%, above the forecast. This keeps prices rising well above the Bank of England’s 2% target. Because of this, the markets expect the Bank of England will be cautious in lowering rates. At the February meeting, nothing is expected to change. The first cut is now anticipated to be closer to the middle of 2026. This makes GBP more appealing than currencies where central banks are about to ease sooner and more aggressively.
On the other hand, the DXY is trading at around 97, close to its multi-month lows. As President Trump prepares to name a new Federal Reserve chair, concerns about the Fed’s independence are growing. Investors continue to express concern that a more politically aligned chair may want to cut rates more quickly. At the same time, the risk of a US government shutdown has risen again. Senate Democrats are reluctant to approve funds for the Department of Homeland Security. The deadline is the end of January.
Meanwhile, markets anticipate that the Fed will keep rates unchanged at its next meeting. Markets already price in at least two more quarter-point cuts by the end of the year, which is faster than what the Fed has communicated.
Traders will closely monitor Powell’s press conference for any indications about the direction of rates. US data, such as ADP employment and consumer confidence, may slightly change expectations. However, politics, tariffs, and uncertainty about who will lead the Fed are the key drivers.
GBP/USD Technical Price Analysis: Correction within Uptrend
The GBP/USD 4-hour chart shows consolidation after a sharp rally extended into the overbought territory. The price is slowly correcting below the 1.3700 mark, with eyes on the confluence of the 20-period MA and the demand zone near 1.3570. However, the intermediary support appears around Monday’s bullish gap near 1.3640, which could halt further downside.
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On the upside, the pair could test the recent swing highs near 1.3713 ahead of 2025 highs around 1.3750. On sustained bullish momentum, the price could move higher to test the 1.3800 zone, ahead of the key psychological mark at 1.4000.
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