GBP/USD outlook: Focus turns to US employment data

The US dollar bounced back today after it couldn’t hold onto yesterday’s earlier gains, as traders reacted to the developments in Venezuela. Attention quickly swung back to the data – with the ISM manufacturing survey disappointing. Today, though, the dollar has staged a mini comeback with the euro giving way on the back of soft German CPI, while the GBP/USD run into offers above the 1.3550 area, and was back to around 1.3500 ahead of this week’s key US data releases starting tomorrow. Given seasonality factors and some mild improvement in US data as we saw at the end of last year (e.g., GDP and NFP), there is a good chance that the dollar may try to stage a more meaningful comeback after its recent falls. A lot will now depend on the upcoming employment data from the US, which could determine the near-term GBP/USD outlook.

 

Dollar in focus as traders eye employment data

 

Despite the rapid unwinding of safe-haven dollar demand yesterday, the dollar has made a mini comeback today. We could see a modest recovery in the greenback in the near term. Seasonal factors are supportive, but that alone will not cut it. Economic data will need to show strength to discourage the dovish camp at the Fed from cutting rates further.

 

This week’s only major US data release so far was the US ISM manufacturing index yesterday, which slipped below 48 in December, the fourth straight monthly decline and the weakest reading since October 2024.

 

That print sets a softer tone ahead of tomorrow’s ISM Services survey. We will have the ADP payrolls report and JOLTS Job openings coming up tomorrow, before the focus shifts to the official non-farm payrolls report on Friday.

 

What about the pound?

 

The pound has not had nearly as much say as the dollar in the direction of the GBP/USD exchange rate last year. With UK inflation cooling faster than expected, with November CPI easing to 3.2% YoY and reinforcing the Bank of England’s view that inflation could move much closer to its 2% target by spring, we could well see some weakness creep into the pound – if not in the cable, then against other currencies as traders prepare for what appears to be a more accommodative policy backdrop in the months ahead.

 

Looking ahead, markets are pricing in one more 25bp cut to 3.5% from the Bank of England, but the path beyond that will depend on how quickly inflation converges to target and whether growth continues to soften. If disinflation accelerates alongside sluggish economic activity, the BoE may be forced to ease more aggressively, potentially taking rates toward 3% by late 2026. Under that scenario, downside risks for GBP would likely increase as yield support fades.

 

GBP/USD outlook: technical analysis

 

 

The GBP/USD chart continues to show a sequence of higher highs and higher lows, with a solid base in place since November. That said, the rally is starting to lose momentum. The lack of meaningful upside follow-through suggests buyers may be running out of steam, particularly as price trades into a long-term resistance zone that stretches from around 1.30 through to the 1.40 area.

 

It’s still too early to call a definitive top, but if GBP/USD fails to hold around the 1.35 handle, traders who bought following yesterday’s bullish engulfing candle could find themselves wrong-footed. That would open the door to position unwinding, potentially triggering a downside squeeze and a deeper pullback in the cable.

 

On the downside, initial support sits near 1.34, an important level that also aligns closely with the 200-day moving average. A sustained break below this zone would raise the risk of a sharper trend reversal. On the upside, 1.3550 now stands out as key resistance, with the next notable level coming in around 1.3620, where profit-taking could emerge.

 

Overall, GBP/USD outlook  looks increasingly indecisive. While yesterday’s candle was constructive, the failure to build on those gains today raises a few question marks about the near-term direction.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R