GBP/USD. Price Analysis. Forecast. GBP/USD Exchange Rate Stabilizes

[Ben Graham]

On Monday, the GBP/USD pair was trading at the round 1.3500 level. After notable fluctuations, the quotes have stabilized as market participants exercise caution ahead of year-end and the Christmas and New Year period, which traditionally sees reduced liquidity.

The British pound remains under pressure. Investors anticipate that the Bank of England will transition to a gradual cycle of monetary policy easing in 2026, considering that inflation in the country is still significantly above the target rate of 2%.

Despite inflation risks easing in recent months, annual inflation slowed to 3.2% in November after peaking at 3.8% between July and September, limiting the scope for the Bank of England to take action. At its last meeting, the bank reduced the key interest rate by 25 basis points to 3.75%, with the decision made by a minimal majority (five votes to four), confirming ongoing concerns about inflation risks.

Bank of England Governor Andrew Bailey recently noted that the course toward rate reduction remains, but emphasized that further steps will be limited as rates approach the neutral level and will depend on incoming economic data. Regarding economic growth, in the third quarter, UK GDP increased by 0.1%, in line with forecasts, while in the fourth quarter, the central bank expects virtually zero growth.

Meanwhile, the US dollar strengthened slightly as market participants continued to anticipate a faster pace of Federal Reserve policy easing in 2026. According to CME FedWatch, the probability of a rate cut of at least 50 basis points is assessed at over 70%. These expectations diverge from the Fed's own forecasts, as its latest "dot plot" suggests that by the end of 2026, the federal funds rate will be around 3.4%, implying a limited number of cuts from the current range of 3.50%–3.75%.

Following US President Donald Trump's statements that the new Fed chair should be an advocate of soft monetary policy, the market has heightened expectations for a more flexible approach from the central bank. Investor attention is now focused on the release of the FOMC meeting minutes on Tuesday, which may clarify the Fed's position on future rate changes.

From a technical perspective, the pair is attempting to strengthen above the round level of 1.3500. Resistance is expected at the 1.3535 level. Support is at the 9-day EMA, below which lies the 1.3440 level. Oscillators on the daily chart are positive but close to the overbought zone, confirming consolidation. The table below reflects the dynamics of the British pound against major world currencies for today. The most significant strengthening is observed in the pair with the New Zealand dollar.

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