After the British pound reached 1.3456 against the US dollar on Tuesday, December 16—its highest level since October 17, 2025—the pair retreated to 1.3312 yesterday. Despite this pullback, GBP/USD remains up around 7% year to date and is currently trading near the 1.3350 level.
Recent UK economic data have been weak. The unemployment rate rose to 5.1%, above the previous reading of 5.0% and marking the highest level in five years. Growth in earnings excluding bonuses slowed to 4.6%, below expectations, and the prior reading of 4.7%. In addition, monthly GDP contracted by 0.1%, weaker than expectations for a 0.1% expansion, though in line with the previous reading.
On the inflation front, headline CPI eased to 3.2% year-on-year, below expectations of 3.5% and the previous reading of 3.6%. Core CPI also declined to 3.2% year-on-year, undershooting expectations and the prior reading of 3.4%.
In contrast, PMI data was positive. The services PMI rose to 52.1, beating expectations of 51.6 and the previous reading of 51.3, while the manufacturing PMI increased to 51.2, above expectations of 50.3 and the prior reading of 50.2.
Despite expectations that the Bank of England will cut interest rates by 25 basis points at today’s meeting, bringing the policy rate to 3.75%, market attention is focused on the distribution of votes among the nine MPC members amid sharp divisions within the committee.
UK government bond yields across the curve declined notably yesterday following the weaker-than-expected inflation report, encouraging investors to buy gilts. The two-year yield, which is the most sensitive to monetary policy expectations, fell to 3.69%, its lowest level since August 23, 2024.
Additionally, a modest strengthening of the US dollar against most major currencies has added downward pressure on GBP/USD.
From a technical perspective, a break below the pivot point at 1.3372 could open the door to support levels at 1.3316, 1.3254, and 1.3198. Conversely, a move above the pivot may see the pair target resistance levels at 1.3434, 1.3490, and 1.3552.
The Relative Strength Index is currently around 58, indicating positive momentum for the pair. Moreover, the MACD is showing a bullish crossover between the MACD line and the signal line, reinforcing the potential for continued upside momentum in GBP/USD.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
