GBP/USD Price Forecast - Pound Holds 1.35 as Fed Cut and Trump’s Fed Chair Shift Pressure the Dollar

GBP/USD Price Around 1.35: Dollar Weakness, Fed Politics and Year-End Flows

Spot Price And Short-Term Structure In GBP/USD

The GBP/USD pair is holding just under the $1.35 handle, with spot around 1.34994 on the FX forecast feed and roughly 1.3492 on the cross-market wrap. Price is consolidating after a strong pre-Christmas rally that pushed the pair to an 11-week high near $1.35. The current tape shows a marginal day move of about -0.07%, which is exactly what you expect from a market digesting gains in thin liquidity rather than reversing trend. Structurally, the recent breakout above the $1.34 zone has turned that region into the first meaningful support, while $1.35–1.36 has become the band where positioning and the Fed narrative will be stress-tested next.

USD Leg: DXY At 98.03, Rate-Cut Pricing And Fed Chair Uncertainty

On the USD side, the backdrop is clearly softer. The dollar index trades around 98.03, only +0.08% on the day, well below earlier 2025 peaks. Rates markets now price at least two Fed cuts in 2026, with cumulative easing around 50 bps, and some curves still assuming the first move could come as early as April 2026, while other projections push it to after June. This rate profile is anchored in softer U.S. data: labor-market cooling signals, slower wage dynamics and easing inflation. Even when headline releases like Q3 GDP surprised to the upside, they did not change the path; the market continues to trade a shift toward looser policy. The political layer strengthens that pressure. President Donald Trump is widely expected to name a successor to Jerome Powell, with Kevin Hassett treated as the leading candidate. Hassett is associated with a strong preference for lower borrowing costs. If he takes the chair, the market will assume a structurally more dovish Fed reaction function. That combination of priced-in cuts and leadership risk keeps the USD on the defensive and gives GBP/USD room to stay elevated near $1.35.

GBP Leg: Illiquid Tape But A Less-Dovish Profile Than The Fed

On the GBP side, the short-term story is lack of domestic drivers. Holiday trading has drained liquidity, and the session you are working off explicitly notes an absence of major UK data releases. Many desks are under-staffed, and flows are light, so GBP is not trading off fresh UK macro surprises. Instead, Sterling is riding the rate-differential structure built earlier in December. The Bank of England has already cut, but the market interpreted it as a hawkish cut, with messaging that policy is easing from restrictive levels rather than pivoting into a deep dovish stance. That leaves the forward curve for UK rates looking less aggressive on easing than the Fed curve. The result is straightforward: relative rate expectations have shifted in favor of GBP, and as the USD loses altitude on 2026 cuts and chair risk, GBP/USD above 1.34 becomes a rational equilibrium, not a speculative overshoot.

Cross-Asset Context: S&P 500 At 6,926.62, Dow At 48,629.42, Nasdaq At 23,614.47

The equity backdrop confirms that this is not a panic-driven FX move. The S&P 500 closed around 6,926.62 (down 5.43 points, or -0.08%), the Dow Jones Industrial Average finished at 48,629.42 (down 101.74 points, or -0.21%), and the Nasdaq Composite ended essentially flat at 23,614.47 (up 1.17 points). Trading was shortened and volumes moderate. Investors are managing year-end positioning rather than reacting to a single macro shock. Strategists are already calling 2026 a “prove-it year”: corporates must show real productivity and margin gains from AI and capex rather than just narrative. A market that is near record highs but cautious about 2026 earnings usually supports pro-risk G10 FX like GBP against the USD, as long as there is no sudden global risk-off event. That fits with GBP/USD holding near $1.35 while U.S. indices hover close to record territory.

USD Versus Other Majors: EUR, JPY, AUD, NZD, CHF And The GBP/USD Placement

The broader USD map shows a selective rather than universal weakness. The euro trades around EUR/USD 1.1769, down 0.08%, even while other commentary frames EUR/USD as “near 1.18” and driven by the same Fed-outlook story. The USD/JPY cross stands near 156.60, up 0.41%, underlining that the yen is still weighed down by extreme yield differentials; Japan’s rate setting is far below U.S. levels, so JPY stays the preferred funding currency. Commodity FX paints a mixed picture: AUD/USD closed around 0.6709, up 0.08%, while NZD/USD slipped to 0.5829, down 0.10%. The USD/CHF rate, at 0.7897 and +0.22%, shows the dollar stronger versus the Swiss franc, where safe-haven demand has eased. In that context, GBP/USD around 1.3492–1.34994 stands out as one of the clearer cases of dollar softness. The dollar is not collapsing across all G10; it is losing ground in those crosses where central-bank path, risk sentiment and politics are aligned against it. GBP sits on the positive side of that matrix.

EM Contrast: USD Strength Against VND While GBP/USD Holds High

The USD/VND segment highlights how the same dollar can behave differently across markets. The U.S. dollar trades on the street around VND 27,149, up 0.03% versus the previous day. The official rate at Vietcombank sits near VND 26,384, and the State Bank of Vietnam reference stands at VND 25,128. At the same time, the dollar index is close to 98.03, and GBP/USD is near 1.35. That combination signals that the USD can still grind higher against selected emerging-market currencies where policy, capital flows and local tolerance for depreciation allow it, while it remains under pressure against a liquid G10 currency like GBP. For GBP/USD, this is constructive: the cross is benefitting from a world in which investors are comfortable holding Sterling as a developed-market alternative to the dollar, while EM central banks and markets still absorb dollar strength.

Fed Minutes: Binary Catalyst For The Next Move In GBP/USD

The next scheduled catalyst is the Federal Reserve’s December minutes, due early next week. Current market pricing leans toward at least two cuts in 2026, around 50 bps of easing, and a non-negligible chance of an early April 2026 move, with others anchored around a post-June start. Overlay that with the rising probability of a Trump-aligned chair such as Kevin Hassett, and you have a setup where anything that sounds more hawkish than the last press conference risks squeezing dollar shorts. If the minutes reinforce dovish messaging – emphasis on inflation progress, labor-market cooling and the need to avoid over-tightening – then GBP/USD can stay supported in the $1.34–$1.36 corridor, with dips likely bought. If, however, the minutes show strong internal pushback against current market pricing and stress that cuts are neither imminent nor guaranteed, the USD could rally tactically. In that case, GBP/USD could be forced back toward the $1.33–$1.34 region, not because the UK outlook has changed, but because the dollar short trade becomes temporarily crowded.

Year-End Liquidity: Thin Volumes, Bigger Potential Swings For GBP/USD

The trading environment around these levels is shaped by post-Christmas illiquidity. Many participants are away, and the text explicitly notes sharply reduced liquidity and muted volatility across FX. That cuts both ways. On average, intraday ranges shrink, but when genuine news hits – for example, a hawkish turn in the Fed minutes or a surprise headline on the Fed chair nomination – price can move faster and further than in a fully liquid week. From a structural perspective, GBP/USD now has obvious short-term reference points. On the upside, stop clusters are likely to sit above 1.3550 and then near 1.3650, tied to recent highs and psychological levels. On the downside, the breakout area around 1.34 is the first support zone, with 1.33 as the deeper line linked to earlier year-end forecasts that had GBP/USD around 1.34. In a thin market, a modest surprise in the Fed minutes could easily swing the pair 30–70 pips in either direction.

GBP/USD Stance At 1.35: Tactical Hold With Mild Bullish Bias On Dips

With GBP/USD trading around 1.3492–1.34994, the dollar index near 98.03, EUR/USD close to 1.1769, and U.S. indices near record levels, the cross is correctly priced for a world where the Fed is expected to ease by roughly 50 bps in 2026, the BoE is more cautious on cuts, and risk appetite remains intact. Chasing an outright BUY at 1.35 assumes the Fed either over-delivers on cuts or that the new chair dramatically accelerates easing beyond what’s already priced. Fading the move with a SELL requires a material hawkish pivot from the Fed or a negative UK-specific shock that the current data do not justify. Given the numbers and structure, the realistic stance is that GBP/USD around 1.35 is a tactical HOLD, with a constructive bias on dips into the 1.33–1.34 area and limited sustainable upside above the high-1.36–1.37 band unless the Fed minutes and chair news decisively undermine the USD again.

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