GBP/USD Price Forecast - Pound Tests 1.3450 as Sticky UK Inflation and Trump’s Greenland Tariffs Hit the Dollar

GBP/USD: Sticky UK Inflation, Soft DXY And Tariff Shock Keep Cable Anchored Above 1.34

Macro snapshot: GBP/USD holds 1.34–1.35 as data and politics align

GBP/USD is trading around 1.3430–1.3460, after spiking toward 1.3490 and repeatedly defending the 1.3390–1.3430 band. The pair has delivered three consecutive positive sessions, powered by firmer UK data, a US Dollar Index (DXY) stuck near 98.60, and a violent shift in global positioning following Trump’s tariff threats on Europe over Greenland. This is not a random move: the structure is a classic policy-spread and geopolitical rerating in favour of the pound, with price consolidating just under the 1.3500 psychological pivot while buyers step in on every dip toward 1.34.

UK labour data: 82K jobs added, 5.1% unemployment keeps GBP from cracking

The three months to November showed UK employment rising by 82K, reversing a prior 17K contraction. That is real absorption of slack, not noise. At the same time, the unemployment rate is stuck at 5.1%, failing to fall to the 5.0% the market wanted. For GBP/USD, this mix says the labour market is cooling but not breaking. It removes the tail-risk of a labour crash that would force the Bank of England into emergency easing, and it keeps the door open for a slower, more controlled policy pivot. That alone justifies why the pair has not traded sustainably back below 1.3380 despite growth worries and political noise.

UK wage dynamics: 4.5–4.7% earnings growth lock the BoE into a restrictive stance

Average earnings excluding bonuses grew 4.5% YoY, and total pay including bonuses rose 4.7% YoY. With unemployment at 5.1%, this wage profile is incompatible with a quick slide back to 2% inflation. For GBP/USD, it means the market cannot credibly price a rapid series of rate cuts from the BoE without ignoring these numbers. Elevated wage growth raises the implied UK real-rate path versus the US once you factor in where inflation actually sits. That is one of the core reasons why dips into the low 1.34s are being bought: the cash market sees a central bank forced to stay tighter than growth alone would justify.

UK inflation: CPI at 3.4% and core at 3.2% keep GBP/USD supported on rate expectations

December headline CPI in the UK accelerated to 3.4% YoY, beating the 3.3% consensus and the prior 3.2% print. Month-on-month, prices climbed 0.4% after a 0.2% drop in November. Core CPI is parked at 3.2%, 120 bps above target. That is the single most important macro input for GBP/USD right now. Inflation is no longer “gliding down”; it is stalling at an elevated level. This undermines the market story of early, aggressive cuts from the BoE and forces traders to price a slower easing trajectory. A slower cut path in London against a gradual softening of the Fed stance in Washington widens the GBP–USD rate spread in favour of the pound, and that is exactly what the price action around 1.3430–1.3460 reflects.

BoE versus Fed: policy spread tilts toward GBP as first Fed cut slips to June 2026

On the US side, the latest read on private-sector jobs showed ADP weekly employment up 8K, down from 11.3K previously. Not strong, but not a collapse. The critical element is how this feeds Fed pricing. Markets now see roughly two Fed cuts in 2026, with the first move pushed back to June, rather than earlier in the year. That keeps the DXY from falling apart but does not create a convincing bullish USD story. In the UK, by contrast, 3.4% headline CPI, 3.2% core and 4.5–4.7% wage growth give the BoE very little room to slash quickly without losing inflation credibility. For GBP/USD, that policy divergence is straightforward: as long as the Fed is moving toward cuts while the BoE is forced to move cautiously, the pair has a structural bid on dips.

DXY structure: 98.60 support, 98.55 Fib floor and neutral momentum limit USD upside

The US Dollar Index is trading near 98.59, clinging to the 0.236 Fibonacci retracement at 98.547. Price has printed multiple spinning tops and doji candles just above that level, signalling that sellers are being absorbed but not reversed. The ascending trendline connecting recent higher lows is still intact, providing dynamic support, while both short- and long-term moving averages are converging and RSI is sitting around 50. If DXY breaks above 98.729 (0.382 Fib), it can test 98.876 and 99.022, but as long as it is stuck in this narrow band, it provides no strong headwind to GBP/USD. In that environment, strong UK inflation and wage data dominate the cross, explaining why spot is pressing the 1.3450 zone rather than drifting back to 1.33.

**Tariff shock and Greenland dispute: “Sell America” trade channels flows into GBP/USD

Trump’s tariff threat is precise and market-moving. Imports from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands and Finland face a 10% duty from 1 February, escalating to 25% from 1 June if there is no deal on Greenland. That is a direct tax on European exporters but an even more direct hit to US-Europe political stability and investor confidence in US policy. The reaction has been clear: investors are pulling funds out of US assets and the dollar, rotating into European currencies and gold. The VIX is sitting at yearly highs, US assets are being sold, and GBP/USD is one of the clearest liquid expressions of this shift. The pair’s ability to trade up to around 1.3463 with daily gains near 0.30% in the face of weak UK growth headlines shows geopolitics overpowering domestic macro in the very short term.

Short-term flow picture: three sessions of gains hold GBP/USD above 1.3430 despite mixed UK data

Over the last three sessions, GBP/USD has repeatedly defended the 1.3430 region. One session saw the pair hold above 1.3430 through Asia and Europe as the market digested mixed labour data: stable unemployment at 5.1%, stubborn wages and a softer growth backdrop. Another session pushed up to 1.3460–1.3490 as traders dumped the USD after the tariff headlines and headlines about Japanese bond turmoil sent volatility measures higher. Even when enthusiasm faded and US comments turned slightly less aggressive, the pair’s pullbacks were capped around 1.3430–1.3450, highlighting solid dip-buying interest. For a market that two weeks ago was debating a retest of 1.33, that is a decisive repositioning.

UK macro balance: inflation risk versus growth risk keeps GBP/USD in a tactical range

The UK economy is not in good shape. Wage growth is stagnating in real terms, activity indicators are soft and sentiment is fragile. The BoE is trapped between 3.4% headline inflation and weak growth. That is why GBP/USD is not exploding into a one-way trend higher but trading in a tactical range. On one side, sticky prices and firm wages prevent aggressive easing and support the pound. On the other side, mediocre growth caps how far the market can push rate expectations and, by extension, GBP/USD. Practically, that translates into a working range with support around 1.3390–1.3430 and resistance near 1.3490–1.3505 in the very near term, with macro catalysts deciding which side breaks first.

Technical structure: triangle consolidation around 1.3435 sets the stage for a breakout in GBP/USD

On the technical side, GBP/USD is trading near 1.3435, sitting inside a symmetrical triangle formed by converging trendlines on the intraday charts. The pair has already tested the upper boundary near 1.3489–1.3491, rejecting it once, and is now oscillating between that resistance and key support in the 1.3392–1.3430 area. The 50-period and 200-period moving averages on the four-hour chart are flattening, confirming consolidation rather than trend. RSI is neutral around 50, matching the price action story: the market is waiting for a catalyst, not aggressively unwinding positions. The critical breakout levels are clear. On the upside, a clean break above roughly 1.34895 unlocks 1.35615 and 1.36114, with 1.3500 as the psychological trigger. On the downside, a move below 1.33921 exposes 1.3360, then 1.33407 and 1.32899.

Dollar side risks: housing slowdown and high borrowing costs cap USD recovery potential

US housing and construction data set the tone for the next leg in the dollar. Pending home sales are expected to drop around -0.3% MoM after a huge +3.3% prior print, while construction spending is forecast to rise only 0.1% MoM versus 0.2% previously. That combination – weaker housing with soft but positive construction – fits a narrative of an economy dragged by high borrowing costs but not yet in recession. For GBP/USD, this matters because it constrains how hawkish the Fed can be if the data confirm this profile. A DXY that struggles to reclaim the 98.88–99.02 band is a supportive backdrop for sterling, especially when UK inflation refuses to roll over. If, however, US data surprise to the upside and DXY pushes decisively through 99.02, GBP/USD will struggle to hold above 1.34 without a fresh UK-side positive surprise.

Event risk and data path: UK CPI, retail sales, PMIs and US PCE keep volatility elevated for GBP/USD

Forward-looking, the pair is highly sensitive to upcoming releases. On the UK side, retail sales and PMIs will either confirm that the economy is bending, not breaking, or force a repricing toward earlier BoE cuts. A downside surprise in these prints, combined with any hint of softer future inflation, would quickly revive talk of aggressive easing and could knock GBP/USD back into the 1.3340–1.3360 area. On the US side, GDP and Core PCE are critical. Any combination of softer inflation and weaker growth pulls Fed cuts forward and is bullish for GBP/USD. A mix of firm PCE and resilient GDP does the opposite. The pair is not trading in a vacuum: every macro release in the next weeks will be priced through the lens of the UK–US policy gap and the tariff shock premium.

Trading bias and levels: GBP/USD skewed bullish above 1.3390, but not a runaway long

Putting macro, politics and technicals together, the bias in GBP/USD is moderately bullish as long as spot holds above 1.3390–1.3400. The market is paying for UK inflation stickiness and wage resilience, while using US tariff risk and a capped DXY around 98.55–98.60 to fund a controlled rotation out of dollars. From a pure level perspective, dips into 1.3390–1.3430 are attractive for upside plays targeting 1.34895, 1.35615 and potentially 1.36114, with invalidation if the pair closes below 1.3340. That setup corresponds to a Buy / bullish stance on GBP/USD, not a neutral hold or outright sell. The trade is not without risk – weak UK growth can still reassert itself – but under the current data and price configuration, the pair is better positioned to break 1.35 than to collapse back through 1.33, unless the macro narrative shifts sharply.

That's TradingNEWS