The pound against the dollar has been trading for the fourth consecutive week within a wide range of 1.3400–1.3530, bouncing alternately off its upper and lower bounds. Buyers tried to push above it (last week's high was 1.3566), while sellers repeatedly attempted to secure the 1.33 area. But each time the pair returned to its previous positions, continuing to circle within the above price corridor.
Several fundamental factors have supported the greenback all this time. First, dovish expectations regarding further Federal Reserve action have weakened in the market. On Wednesday, the probability of a pause at the January meeting is 97%. The probability of a rate cut in March is only 25%, in April — 35%, and in June — 47%. In other words, the market is confident the Fed will keep the policy rate unchanged this month and is almost certain the status quo will be maintained through the first half of the year. Such cautious forecasts support the greenback.
The second support factor is geopolitics. The military operation in Venezuela, Trump's threats against Colombia, Cuba, and Greenland, and large-scale protests in Iran — all these events have provoked a surge in risk-off sentiment in markets, which has increased demand for the dollar as a safe-haven asset.
Unexpectedly, the Bank of England sided with the pound by signaling moderately hawkish messages at its December meeting. The central bank predictably cut the policy rate by 25 basis points. However, only five of nine Monetary Policy Committee members voted for that decision. Four voted to keep the rate unchanged. Thus, the decision to cut hung by a thread and depended on a single vote.
Moreover, the BoE made it clear that the potential for further monetary easing is limited. Committee members expressed concern about leading indicators of wage growth, which, in the Committee's view, "could potentially keep inflation significantly above the central bank's target."
In other words, the BoE declared a course toward further easing but acknowledged that subsequent dovish decisions "will be more difficult." Such signals reduced fears that the central bank would resort to aggressive rate cuts in 2026.
That is why every subsequent macroeconomic report published in the UK will be viewed through the prism of the BoE's December meeting. In this context, Thursday's release is important because it will reflect the dynamics of UK economic growth.
According to preliminary forecasts, UK GDP in November increased by only 0.1% month-on-month, after declining by 0.1% the previous month. In quarterly terms, the indicator is expected to remain negative at ?0.1%. Year-on-year GDP is projected to grow by 1.1% after a 1.3% rise previously.
The stated result is fairly weak. Therefore, if the report comes in line with forecasts (not to mention in the "red zone"), the pound may come under pressure — especially if accompanying macro indicators also miss forecasts. Preliminary forecasts do not bode well for the pound. In particular, industrial production is expected to rise by only 0.1% m/m in November after a 1.1% increase; manufacturing output is expected to rise 0.2% m/m (previous month +0.5%).
Against such weak forecasts, long positions in GBP/USD look risky. Especially given that the macro releases published on Wednesday in the US were on the greenback's side. In particular, the Producer Price Index (both headline and core) accelerated to 3.0% y/y (versus a forecast drop to 2.7%). Retail sales data also came in positive. Total US retail sales rose 0.6% (forecast 0.5%); excluding autos, retail sales rose 0.5% (forecast 0.4%). The market reacted coolly to these releases, probably because they are November figures published only on Wednesday due to the aftermath of the shutdown.
Still, the fact remains: PPI and Retail Sales were in the green, reflecting the respective trends.
From a technical standpoint, GBP/USD on the daily chart is attempting to overcome resistance at 1.3450 (the middle Bollinger Band on the daily chart). At the same time, the pair is above the Kumo cloud but between Tenkan-sen and Kijun-sen. On the 4-hour chart, the pair is also on the middle Bollinger Band and between Tenkan-sen and Kijun-sen, but below the Kumo cloud. All this indicates persistent uncertainty and a lack of clear technical signals. Considering longs toward 1.3530 (the upper boundary of the established price range) is reasonable only after the pair closes above the Bollinger Bands' middle line on D1, i.e. above 1.3450. If GBP/USD buyers fail to overcome this price barrier, the pair will return to the lower boundary of the price corridor at 1.3400 (the lower Bollinger Band on H4).
