GBP/USD Price Forecast: Pound Builds Toward 1.35 on Fed Dovish Shift and U.K. Growth Revival

GBP/USD Surges Toward 1.35 as Traders Brace for Fed Rate Cuts and U.K. GDP Acceleration

Sterling Builds Momentum Above 1.33 While the Dollar Weakens, With Bulls Targeting 1.3500 Ahead of Key Policy Shifts

The GBP/USD pair is advancing for a third consecutive week, trading near 1.3330, its strongest level since October 27. The British pound’s recovery comes as investors price in a 93% probability of a Federal Reserve rate cut at this week’s meeting, pushing the U.S. dollar (USD) to a seven-week low. Simultaneously, expectations for a mild U.K. GDP expansion of 0.1% in October have reinforced bullish sentiment around the pound. The pair has now climbed more than 2.4% from November’s trough of 1.3010, signaling a firm shift in market structure as traders anticipate synchronized monetary easing from both central banks.

Fed Rate Cut Speculation Weakens USD, Boosts GBP/USD Momentum

Market sentiment around the U.S. dollar remains fragile. Data from prediction markets Polymarket and Kalshi shows traders pricing in nearly certain odds of a 25-basis-point Fed cut, with further reductions expected throughout 2026. The potential nomination of Kevin Hassett as the next Fed Chair under a Trump administration adds another layer of dovish anticipation — Hassett has consistently favored aggressive rate reductions to stimulate growth. As a result, the U.S. Dollar Index (DXY) has slipped toward 102.1, down from its early-November high of 106.2, directly supporting the pound’s upside. If the Fed confirms a dovish shift and signals a longer easing cycle, GBP/USD could extend gains toward 1.3500, a level not seen since July.

U.K. Growth Stabilizes, Policy Signals Shift to Recovery Mode

Across the Atlantic, the Office for National Statistics (ONS) is set to release U.K. GDP data showing an expected 0.1% monthly expansion in October after September’s -0.1% contraction. On a yearly basis, the economy is forecast to have grown 1.4%, up from 1.1%, reflecting resilience in the services sector despite persistent inflationary pressures. The OBR has revised its 2025 GDP forecast to 1.5%, up from 1%, reinforcing that the slowdown may have bottomed out. Fiscal measures introduced by Chancellor Rachel Reeves, including a £26 billion tax adjustment, are being interpreted as growth-neutral and strategically supportive of U.K. credibility, avoiding household shocks while keeping public borrowing anchored. These factors underpin medium-term support for the pound as markets expect the Bank of England (BoE) to maintain restrictive rates until Q2 2026, even as inflation trends downward.

Technical Outlook: GBP/USD Targets 1.3500 With Momentum Confirmation

The GBP/USD technical picture is decisively bullish. The pair trades above the 50-day Exponential Moving Average (EMA) and is approaching the 100-day Simple Moving Average (SMA) near 1.3350, a zone that has capped gains since late October. The Relative Strength Index (RSI) currently prints 68, nearing overbought levels but confirming consistent upward pressure. A sustained close above 1.3350 would confirm a breakout from the 23.6% Fibonacci retracement zone (1.3400), setting up the next leg toward 1.3500 resistance. Momentum oscillators and the MACD histogram are firmly positive, supporting continued buying interest as long as the pair holds above 1.3200 — the defined short-term stop level. Should bulls secure control above 1.3400, the medium-term path extends toward 1.3600, where the next key retracement zone aligns with the 200-day EMA

Futures Market Confirms Sterling Strength

Data from CME Group shows open interest in British pound futures (6B contracts) rising to 3 million lots, reflecting institutional inflows into sterling exposure. Average daily trading volume stands near $100 billion notional, with GBP/USD futures last trading at 1.3312, down marginally by 0.16%, but maintaining strong weekly gains. The CME CVOL™ Index for GBP/USD has climbed to 6.05, indicating that traders are positioning for higher volatility into the Fed and BoE decisions. Liquidity remains high, and positioning data suggests traders are net long sterling for the first time since August, signaling conviction that the U.S. dollar’s strength cycle is peaking.

U.S. Inflation and Policy Reaction in Focus

Markets are now watching the U.S. Producer Price Index (PPI), expected to rise to 2.7%, as a potential catalyst for post-Fed volatility. Any downside surprise could amplify the dollar’s decline and reinforce GBP/USD’s rally above 1.34. Conversely, an unexpected upside in core inflation could temporarily limit sterling’s gains, although the structural bias remains bullish due to divergent growth trajectories — the U.K.’s slowdown appears contained, while U.S. momentum is cooling faster than anticipated. The 10-year U.S. Treasury yield, now near 3.86%, continues to fall, reducing dollar attractiveness relative to higher-yielding sterling assets.

Market Sentiment and Trading Strategy

Sentiment indicators point to a growing bullish bias. Retail traders remain cautious, but institutional flows dominate price action. Technical traders are now focusing on 1.3200 as critical near-term support; as long as the pair remains above that zone, trend-following models favor further appreciation. A break below that level would invalidate the short-term bullish setup, but probability-weighted scenarios currently favor a continuation toward 1.3450–1.3500 before year-end.

Verdict — GBP/USD: BUY (Target 1.3500, Stop 1.3200)

The combination of Fed dovish pivot expectations, improving U.K. macro data, and strong technical confirmation supports a bullish outlook for GBP/USD. With price currently at 1.3330, the pair is positioned for an advance toward 1.3500 over the next several sessions, contingent on follow-through above 1.3350. Support rests at 1.3200, and failure to hold that base would only shift momentum temporarily. The structure favors buyers as long as the U.S. dollar remains under pressure.
Rating: BUY — bullish bias above 1.3200; upside target 1.3500; medium-term resistance 1.3600.

That's TradingNEWS