GBP/USD Price Forecast - Pound Reclaims 1.3450 as Fed Political Storm and 2.7% CPI Undermine Dollar

GBP/USD: Fed Shock, CPI 2.7% and a Tight 1.34–1.35 Battlefield

Fed subpoenas, Trump pressure and why GBP/USD snapped back above 1.3450

GBP/USD found buyers just under 1.3400 at the end of last week and then squeezed back above 1.3450 as the dollar sold off on a very specific trigger: legal action against Fed Chair Jerome Powell and a direct hit to perceived Fed independence.
The Department of Justice subpoenas over building renovation testimony are more than a legal detail – Powell himself framed them as “pretexts” and as an attack on the central bank’s autonomy. Markets read that as political interference aimed at forcing lower rates. That kind of pressure usually erodes confidence in the USD, and the price action reflected it: instead of benefiting from geopolitical nerves, the dollar reversed lower and allowed GBP/USD to rebound from the 1.34 handle into the 1.3450–1.3475 zone.

CPI at 2.7% and core at 2.6%: inflation still sticky, but not strong enough to save the dollar

The latest US CPI print for December showed headline prices up 0.3% month-on-month and 2.7% year-on-year, unchanged from November. Core CPI rose 0.2% on the month and slowed to 2.6% year-on-year versus 2.7% previously. That combination is crucial for GBP/USD: inflation is not collapsing, but it is drifting closer to the Fed’s comfort zone.
Money markets still price roughly 50 bps of Fed cuts by the end of 2026. The data set is not strong enough to force rate hikes back into the curve, yet not weak enough to generate panic easing. Net effect: the dollar lost the macro excuse to rally, especially with the Powell subpoenas hanging over it. That helps explain why GBP/USD can sit near 1.3450 with US CPI at 2.7% – the political discount on the USD offsets the inflation print.

“Sell America” narrative vs bond market reality: how far can the dollar fall against GBP?

Commentary around the subpoenas talks openly about a “sell America” narrative: fear that Trump will compromise Fed independence to push for cheaper money. Strategists warn that if this perception sticks, it puts structural downside pressure on the USD.
But the bond market is not fully buying that story yet. Treasury futures have stabilised rather than collapsing, signalling that investors still assume the Fed will defend its policy line and that Powell will likely remain influential even after his chair term ends. That tension keeps GBP/USD in a range rather than in a one-way squeeze higher: the political risk is dollar-negative, but the rates market refuses to price a complete loss of Fed credibility.

UK side of GBP/USD: flat GDP expectations and limited domestic fuel

On the UK side, the near-term data flow is thin. November GDP is expected at 0.0% month-on-month after a -0.1% contraction in October. Stagnation is still better than a double-dip contraction, but it does not give sterling a strong macro tailwind.
There is no high-impact UK data on the day; the focus is Thursday’s GDP, with US PPI and Retail Sales also in play. That leaves GBP/USD trading more as a dollar story than a UK-growth story for now. The pound is not rallying on UK strength; it is holding ground because the USD is battling politics and a rates market that already priced a large part of the tightening cycle.

Positioning check: GBP is strong vs JPY and steady vs EUR – support for GBP/USD

Weekly performance tables show GBP outperforming the yen by roughly 0.9% and posting modest gains versus EUR and CAD. That matters: GBP/USD is not just about a weak USD; sterling is broadly firm in G10, helped by the perception that the Bank of England will stay tighter for longer than many peers.
This backdrop allows GBP/USD to respect support around 1.3390–1.3400 and recover quickly when the USD runs into idiosyncratic problems such as the Powell subpoenas. The cross is not being dragged higher by speculative noise alone; it is riding a genuine relative-strength story for GBP against a politically-noisy USD.

Daily chart: GBP/USD boxed between 1.3390 support and the 1.35 ceiling

On the daily timeframe, GBP/USD is locked in a clear band: support around 1.3390–1.3400 and resistance in the 1.3475–1.3500 area. The 200-day simple moving average sits just under price at roughly 1.3388, reinforcing the lower boundary as a key line in the sand.
A sustained break below 1.3400 would expose the 100-day SMA near 1.3369, but so far buyers step in before that. Upside, the 1.35 handle marks psychological resistance and the upper edge of the recent consolidation. Every attempt to push cleanly through 1.3500 has stalled, showing that bulls are not yet strong enough to force a trend leg toward 1.3567 (the recent cycle high) without a fresh macro catalyst.

Short-term momentum: overbought at 1.3475 but still riding a bullish near-term trend

Intraday, GBP/USD has just tested 1.3475 – a level highlighted as “strong resistance” by one bank – and that touch coincides with overbought signals on relative strength indicators. At the same time, price is trying to shake off the negative drag from the 50-day EMA and confirm a full recovery on the near-term horizon.
The structure is straightforward: the main short-term trend is still bullish, with higher lows in place since late November. The overbought reading warns of consolidation or minor pullback from 1.3475–1.3500, not an immediate trend reversal, as long as the pair stays above the 1.3390–1.3400 shelf and above the 200-day SMA.

Four-hour structure: trendline from 1.3390 and a tight cluster around 1.3460

On the 4-hour chart, GBP/USD is trading near 1.3460–1.3465 after bouncing from a rising trendline anchored around 1.3390. That trendline defines the current bullish channel. The 200-EMA sits near 1.3400, acting as a structural floor, while the 50-EMA around 1.3470 is capping the very short-term upside.
Recent candles show long lower wicks around 1.3390–1.3420, signalling dip-buying rather than distribution. The market is willing to accumulate GBP/USD near the base of the range and lighten up as price approaches 1.3475–1.3500. This is classic range-with-upward-bias behaviour.

Trading levels: 1.34 buy zone vs layered resistance at 1.3486–1.3531

Intraday tactical levels from recent price action are tight and explicit. On the downside, buyers have repeatedly stepped in near 1.3448, 1.3420 and 1.3391. These three layers form a demand zone: every probe into that band has attracted bullish reversal patterns on the hourly chart.
Upside, supply emerges around 1.3486, 1.3503 and 1.3531. Short-term sellers have been fading GBP/USD into this region, using tight stops above local swing highs. That creates a well-defined battlefield: bulls defend 1.3390–1.3420; bears sell spikes into 1.3486–1.3531. Until a major data shock breaks one of these walls, the pair is likely to oscillate inside this corridor.

Event risk: US CPI released, next catalysts are UK GDP, US PPI and Retail Sales

The US CPI release (0.3% m/m, 2.7% y/y; core 0.2% m/m, 2.6% y/y) is already in the price. The next drivers for GBP/USD are UK November GDP and the US PPI and Retail Sales prints.
If UK GDP confirms 0.0% after -0.1%, it strengthens the argument that the UK is avoiding a deeper downturn, which supports GBP at current levels. A weaker number would make the 1.3390–1.3400 floor more fragile. On the US side, softer PPI and soft Retail Sales would reinforce the market’s view that the Fed can cut later in 2026, weighing on the USD and favouring a break through 1.3500. Stronger data would do the opposite, pulling GBP/USD back toward the 1.34 area.

Sentiment around GBP/USD: cautious bulls, not euphoric buyers

The combination of political pressure on the Fed, modestly positive UK-relative performance and clearly defined technical support has created a “cautious bullish” sentiment around GBP/USD.
Traders are not chasing strength above 1.35 because overbought signals and the lack of a clean macro catalyst argue against a vertical breakout. Instead, the bias is to buy pullbacks into 1.3390–1.3420 and take profits into 1.3500–1.3560. That behaviour fits with the broader view that the dollar is vulnerable but not collapsing, and that sterling is firm but not in a runaway bull trend.

Verdict on GBP/USD: Buy on dips, bullish bias while above 1.3390

Taking all the numbers together – GBP/USD holding 1.3390–1.3400 support, trading around 1.3450–1.3475, capped near 1.3500, with US CPI stuck at 2.7%, core at 2.6%, the dollar index near 99, and political pressure weighing on Fed credibility – the balance of risk leans in favour of the pound.
Bias: Buy, with a preference to accumulate GBP/USD on pullbacks into the 1.3390–1.3420 area, targeting 1.3500 first, then 1.3560 and potentially 1.3700 if UK data cooperates and US politics keep the USD under pressure. The bullish case is invalidated on a daily close below roughly 1.3340 and the 200-day region; above that line, the pair remains a buy-on-dips market, not a short.

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