GBP/USD Forecast: BoE Caution Leaves the Pound Searching for Direction

Although GBP/USD has gained close to 0.5% over the last three trading sessions, reflecting a period of relative strength for the British pound, today's session has started to show a more neutral tone and the bullish momentum seen earlier in the week has begun to slow.

Much of this behavior follows the latest Bank of England (BoE) decision. While the central bank delivered the rate increase expected by the market, its overall message remained cautious and failed to significantly improve confidence around pound-denominated investments. In addition, with the release of key U.S. employment data scheduled for tomorrow, this phase of indecision could remain a relevant feature of GBP/USD price action over the coming sessions.

What Happened at the Bank of England?

Earlier today, the Bank of England announced its latest interest rate decision. As markets had anticipated, the institution raised its benchmark rate from 3.75% to 4.00%, marking the first rate increase in the UK during 2026 and representing a meaningful shift from the cautious stance that had dominated much of the year.

Source: TradingEconomics

However, the most important developments came after the decision itself. Although policymakers acknowledged that the energy shock continues to represent an inflationary risk, several members emphasized that today's move should not necessarily be interpreted as the beginning of a prolonged tightening cycle. Instead, future decisions will remain heavily dependent on incoming economic data.

This distinction matters because, despite today's hike, investors still lack confidence that the Bank of England is prepared to maintain a consistently more restrictive monetary policy. That perception can also be seen in market pricing for the December 17 meeting, where traders continue to assign more than a 60% probability that rates will remain unchanged at the current 4.00% level.

Source: Centralbankwatch

As a result, the absence of a clearer signal regarding future rate hikes has also limited the reaction in the UK bond market. 10-year UK government bond yields continue to trade only slightly above the 5.00% area and have not shown a meaningful recovery following the central bank's decision.

Source: TradingEconomics

With all of this in mind, the BoE appears to have created more questions than answers regarding the direction of monetary policy over the coming months. This uncertainty has translated into a more cautious outlook for pound-denominated investments and could continue encouraging a lack of direction in GBP/USD until markets receive a clearer signal from policymakers.

Does the Fed Remain a Threat?

It is also important to keep in mind that the latest U.S. Non-Farm Payrolls (NFP) report will be released tomorrow. Current forecasts point to approximately 65,000 new jobs, compared with the previous reading of 29,000.

The importance of this release lies in its potential impact on expectations surrounding Federal Reserve policy. For now, markets continue to assign more than a 75% probability of a rate hike at the December 9 meeting, taking rates from 4.00% to 4.25%.

Source: CME

However, the real impact will depend on how strong the employment data turns out to be. If payroll growth significantly exceeds forecasts and continues to signal a resilient U.S. economy, this could strengthen expectations for a more aggressive Federal Reserve not only in December but also during the first months of 2027.

This scenario would be particularly important because a more hawkish Fed would contrast sharply with the cautious tone displayed by the Bank of England today. Under those conditions, the relative attractiveness of dollar-denominated investments could continue improving against pound-denominated assets, potentially extending the current phase of indecision around GBP/USD and even opening the door to broader medium-term weakness.

GBP/USD Technical Forecast

Source: StoneX, Tradingview

• The broad trading range remains the dominant structure: Although GBP/USD has posted a relatively consistent recovery in recent sessions, the move is still not strong enough to confirm a new bullish trend on the daily chart. For now, prices continue to develop within the broad trading range that has dominated the pair for several months. Unless buyers manage to challenge key resistance levels, this lack of direction could remain an important characteristic of the market.
   

• MACD: The MACD histogram continues to trade above the 0 neutral line, reflecting an improvement in the average strength of short-term moving averages. This reading continues to support the view that the bullish bias remains relevant in the chart.
   

• RSI: A similar picture can be seen in the RSI, which continues to trade above the 50 neutral level. This suggests that bullish momentum remains relevant in recent price action. However, it is also important to note that the indicator is gradually approaching the 70 overbought level, a development that could begin to signal an excessive amount of recent buying pressure.
   

Key Levels:

• 1.35604 – Key Resistance: A level that has acted as an important upside barrier for several months. Price action reaching this area could reinforce bullish momentum and begin opening the door to a more structured bullish trend capable of challenging the broader trading range.
   

• 1.34249 – Near-Term Barrier: A level that coincides with both the 50-period and 200-period simple moving averages. It currently represents an important area of equilibrium and could become the main level to monitor in the event of short-term bearish corrections.
   

• 1.33379 – Critical Support: A recent lows area that has been respected on multiple occasions and continues to act as an important downside barrier. Price action returning toward this level could reinforce the current lack of direction and favor the continuation of the broad trading range as the dominant technical structure in the weeks ahead.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25