GBP/USD Price Forecast - Pound Holds Around 1.34 As Fed Easing And BoE Weakness Set The 2026 Trading Range

GBP/USD Price Outlook 2026

Where GBP/USD Finished 2025

The GBP/USD pair closed the year trading around 1.3436–1.3455, after an intraday dip toward 1.3426, finishing roughly 0.2% lower on New Year’s Eve but about 8% higher over 2025 as a whole. The GBP/EUR cross hovered near 1.1461, confirming that Sterling’s strength was primarily a US Dollar story rather than a broad UK outperformance. The final session was dominated by year end position adjustments and low liquidity, with traders cutting risk and rotating back into the USD, which pushed GBP/USD off its recent highs without any fresh UK data catalyst.

Dollar Weakness And DXY Structure

The US Dollar Index DXY ended the year around 98.25–98.28, not far from a recent high at 98.44 but still roughly 2% below the November peak at 100.40 and down close to 10% year on year, its worst annual performance in about eight years. The move reflects the transition from a strong dollar regime to an easing cycle, as the Federal Reserve has cut rates toward a 3.50–3.75% band. Weekly US jobless claims at 199K versus 219K expected and 215K prior show that the labour market is still resilient, which limits how far and how fast the USD can fall, but the structural direction is weaker. On the chart, DXY trades inside a rising channel with support just below 98.00 and around 97.75, while resistance sits near 98.36–98.74 and the 200 day EMA around 98.60, meaning any sustained push above that zone can temporarily cap GBP/USD, but a clean break under 98.00 would reopen downside for the Dollar and support further Cable upside.

Bank Of England Path And The UKs Macro Drag

Sterling’s ceiling is set by domestic weakness rather than a lack of help from the Dollar. The Bank Of England has already trimmed Bank Rate by 25 basis points to around 3.75% and signalled that inflation should drop toward 3% in Q1 2026 and closer to 2% by Q2 2026, with markets pricing a very high probability near 88% for another 25 basis point cut. The UK unemployment rate has climbed to roughly 5.0–5.1%, while job vacancies have fallen for six straight quarters, signalling a cooling labour market. Higher overall tax burdens and social security contributions after the latest budget are squeezing employers and households, undermining domestic demand and preventing GBP from trading like a classic high carry currency even though GBP/USD is above 1.34. With no meaningful UK data releases into year end, there was simply nothing local to offset those structural headwinds when global risk appetite faded.

Policy Divergence And 2026 Trading Range

Policy divergence between the Federal Reserve and the Bank Of England defines the shape of the GBP/USD curve in 2026. The Fed has already cut to roughly 3.50–3.75%, and markets expect additional easing that could push the fed funds rate closer to 3.00% in the first half of the year, reinforcing the Dollar’s loss of yield support. The BoE, starting from about 3.75–4.00%, is expected to ease more gradually toward 3.00–3.25% by late 2026, with some scenarios pointing to 2.75% if UK growth deteriorates further. That mix favours GBP/USD upside in early 2026, as US yields compress faster, but the advantage erodes once the BoE accelerates its cuts. Street projections cluster around a broad 1.30–1.47 band for the year with a central gravity in the 1.36–1.40 zone, implying room for Sterling strength but not a one way trend.

Short Term Levels For GBP/USD Traders

On the daily chart, GBP/USD finished the year near the 50 day EMA at 1.3460 and just above the 200 day EMA at 1.3410, which now act as immediate trend support. Recent price action shows rejection around the upper channel in the 1.3500–1.3530 band, and momentum indicators such as the RSI are rolling down from stronger readings toward the low and mid ranges, signalling loss of upside power rather than a confirmed reversal. On the downside, 1.3410 is the first line to watch, followed by 1.3345 and deeper support around 1.3250–1.3165, which corresponds to the 52 week moving average. On the upside, near term resistance stands at 1.3494, with a wider cap in the 1.3500–1.3535 area and longer term targets at 1.3789 and then 1.4250 if the rally extends. In practical terms, the pair is boxed between firm support in the low 1.34s and persistent supply in the mid 1.35s until one side is decisively broken.

Sentiment Flows And Year End Positioning

Flow data and behaviour into the final sessions of 2025 confirm a crowded but fragile long Sterling theme. Year end portfolio rebalancing favoured the USD, as asset managers closed outperforming positions and rebuilt cash buffers, which naturally created demand for the Greenback and pushed GBP/USD off intraday highs despite the broader bearish Dollar narrative. The Pound remains sensitive to shifts in global risk mood; it rallies when equities and credit markets are strong and underperforms when investors move to safety. The combination of a 10% annual drop in DXY, an 8% yearly gain in GBP/USD, and still elevated speculative long positioning means Sterling is vulnerable to abrupt pullbacks on any surprise from the Fed, any disappointment in UK data, or any global risk off event, especially while the pair sits near the top of its recent range.

Medium Term Bank Targets For GBP/USD

Institutional projections for GBP/USD in 2026 are wide and reflect genuine uncertainty. Cautious houses anchor year end around 1.35–1.36, arguing that Sterling will mainly track EUR/USD and will be constrained by weak UK growth and fiscal credibility questions. More balanced forecasts see GBP/USD rising toward 1.39–1.40 in the first half, supported by further Fed cuts and Dollar repricing, before sliding back into the mid 1.30s as the BoE eases more aggressively and policy spreads narrow. The most optimistic scenarios project a move toward 1.47 by year end, with optional spikes toward 1.50 if US data deteriorates sharply and the Fed is forced to deliver deeper easing while UK growth stabilises. All of these views share one point: they see GBP/USD trading comfortably above the 1.30–1.32 floor established in 2025, but they diverge on how sustainable any break above 1.40 will be.

Final View On GBP/USD Buy Sell Or Hold

With GBP/USD sitting around 1.3436–1.3455, the USD down roughly 10% on DXY, Fed rates near 3.50–3.75%, BoE rates around 3.75–4.00% and UK unemployment near 5.0–5.1%, the balance of evidence favours a hold stance with a tactical, range trading bias rather than an aggressive directional call. The macro backdrop supports mild Sterling strength in early 2026, but heavy overhead resistance between 1.35–1.38 and the ongoing drag from weak UK growth argue against labelling Cable a clean long at current levels. The most rational approach with these numbers is to treat 1.33–1.34 as an attractive buy zone, 1.37–1.38 as a zone to scale out or fade strength, and to keep a medium term base case of GBP/USD oscillating inside a 1.32–1.38 corridor unless Fed policy, BoE signalling or labour market data materially break from the present trajectory.

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