The pair held around $1.3430 on Thursday, and the pound strengthened yesterday following better-than-expected UK economic growth data. These figures may shape market expectations for Bank of England policy in the coming months.
Since early January, the pound has made limited gains against the dollar, but has strengthened noticeably against the greenback. Dollar sentiment remains cautious due to geopolitical tensions involving Iran and Greenland, as well as President Donald Trump's renewed comments questioning the independence of the Federal Reserve.
Investor sentiment towards the pound has become more constructive in early 2026. According to the US Commodity Futures Trading Commission (CFTC), traders reduced bearish bets on the pound at the fastest pace in five months during the first week of January. The net long dollar position against sterling fell sharply to $2.577 billion, down from $6.586 billion at the end of December, marking the steepest weekly decline since September 2019.
in the UK declined faster than expected towards the end of 2025, and markets are currently pricing in two Bank of England rate cuts this year. However, analysts consider this too optimistic: persistently weak growth and moderate inflation could ultimately weigh on the currency. The upcoming weak employment and inflation data for December will be key to reassessing the likelihood of a rate cut as early as February, although markets currently assign low probabilities to such a move.
Key releases including consumer prices and labor market data will be released next week, followed by figures on Thursday. A Reuters poll suggests the UK economy contracted 0.2% in the three months to November, with annual growth estimated at around 1.1%.
Technical analysis: GBP/USD
H4 Chart:
On the H4 chart, GBP/USD is forming a wide consolidation range around $1.3455. The range is expected to extend towards $1.3395, followed by a corrective bounce to $1.3415. Once completed, the downtrend could resume towards $1.3290, with further potential up to $1.3220. The MACD indicator supports this short-term bearish outlook, with its signal line below zero and pointing firmly downwards.
H1 Chart:
On the H1 chart, the pair has established a tight consolidation range around $1.3440. A move lower towards $1.3395 is underway, and a break below this level would open the door for further declines towards $1.3290. The stochastic oscillator aligns with this view as its signal line is below 20 and trending down, indicating sustained selling momentum.
Conclusion
Despite improving sentiment and a sharp reduction in speculative short positions, the pound remains vulnerable to downside risks from internal data and changing expectations from the Bank of England. Technically, the pair maintains a short-term bearish bias, with key support levels at $1.3395 and $1.3290. A break below these levels could accelerate declines, while any sustained recovery would likely require better-than-expected UK data in the coming week.
By RoboForex Analysis Department
Disclaimer: Any forecast contained herein is based on the author's personal opinion. This analysis cannot be considered trading advice. RoboForex assumes no responsibility for trading results based on the trading recommendations and reviews contained herein.
