GBP/USD Price Forecast - Pound Stuck Under 1.35 as Dollar Strength Overpowers UK Data Beat

GBP/USD: Dollar Strength Pins Cable Below 1.35 Despite UK Data Beat

UK data surge fails to push GBP/USD sustainably above 1.3500

GBP/USD slid through the 1.3500 floor and printed four-week lows below 1.3450, with spot hovering around 1.34–1.35 even after a strong UK data run. January’s public-sector surplus hit £30.4 billion versus £14.5 billion a year earlier, while the budget deficit for the first ten months of 2025/26 narrowed to £112.1 billion from £126.7 billion. Retail sales volumes jumped 1.8% in January after 0.4% previously, crushing the 0.2% consensus. Flash PMIs reinforced the growth story: the composite index printed 53.9, the highest since early 2024, with manufacturing at 52.0 and manufacturing output at a 17-month high of 53.6. On this mix, Q1 2026 GDP around 0.3% is realistic, yet GBP/USD only managed a modest bounce that stalled just under 1.3500, confirming that every recovery leg is being sold into a stronger USD trend rather than rewarded with a sustained re-rating of the Pound.

BoE easing bias caps GBP even as growth and PMIs improve

The macro surprise is not enough to change the Bank of England’s trajectory, and that limits upside in GBP/USD. Seventeen consecutive months of job losses, concentrated in services, underline that firms are still cutting headcount to offset wage and tax pressure. Earlier CPI and labour data already pushed markets towards further easing; the latest PMIs simply reduce the recession premium, they do not remove the argument for cuts. A March rate cut remains the base case, and the curve still prices follow-up easing later in 2026. That leaves GBP as a currency backed by improving real-economy data but tied to a central bank that is closer to its first cut than its last, a combination that keeps rallies in GBP/USD shallow whenever the US side strengthens.

Fed repricing and yields keep USD in control of GBP/USD direction

On the US side, the USD leg of GBP/USD is supported by both rates and risk. Fed speakers have pushed back against aggressive easing, with the probability of a first cut slipping toward June and the odds only slightly above 50%. Stronger-than-expected PCE inflation and still-solid Q4 GDP keep US yields firm and force a rethink of the “early and deep cuts” narrative. As long as the Fed looks willing to sit higher for longer, rate differentials stay in favour of the dollar. That repricing is visible directly in price action: when US yields grind up, GBP/USD fades any bounce and drifts back toward the mid-1.34 area, even when UK data outperforms.

Geopolitics, oil and tariffs extend structural USD support against GBP

Beyond rates, global risk dynamics add another layer of support for the USD side of GBP/USD. Rising US–Iran tensions, talk of limited strikes and the risk of disruption in the Strait of Hormuz have pushed crude benchmarks higher and revived classic safe-haven flows into the dollar. At the same time, the Supreme Court tariff ruling and fresh tariff threats from Washington maintain a background of trade uncertainty. In this environment, oil spikes and geopolitical stress tend to push capital back into USD, especially when the US economy is still expanding and yields are elevated. The Pound, by contrast, behaves more like a high-beta G10 currency: it benefits in calm, risk-on phases but underperforms when oil, tariffs and war risk dominate headlines, which is exactly what is visible in the current GBP/USD profile.

EUR and cross-FX backdrop highlight GBP underperformance versus USD

The broader FX backdrop confirms that sterling weakness is largely a dollar story, not a collapse in UK fundamentals. Eurozone PMIs have finally dragged manufacturing back above 50, with the composite around 51.9 and factory output at 50.8 after a prolonged contraction. That has reduced expectations of additional rapid ECB cuts and kept the euro reasonably stable. GBP/EUR trades around 1.1439, reflecting marginal Pound strength after UK data, but GBP/USD remains pinned below 1.3500 because the USD narrative is more powerful than the ECB–BoE spread. With both the ECB and BoE still cautious and the Fed delaying cuts, the US currency remains the high-yield, high-liquidity anchor in the majors, and GBP is priced accordingly.

Key GBP/USD levels: 1.3500 as pivot, 1.3450 and mid-1.33s as downside markers

The technical map on GBP/USD mirrors the macro story. The pair has slipped below the 1.3500 pivot that previously acted as a floor and now behaves as a cap. Lows just under 1.3450 mark the first important support zone; a clean break there exposes the mid-1.33s, with scope for an extension toward the 1.32 region if US yields push higher or risk sentiment deteriorates further. On the topside, 1.3500–1.3520 is now the first resistance band; only a decisive daily close above that band would open space toward 1.3600–1.3650, where prior rallies stalled and where USD buyers are likely to reload. As long as price holds under 1.3500, the structure favours a sell-on-strength approach rather than bottom-picking, with downside risk dominating the GBP/USD profile in the current rates and geopolitical environment.

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