The British pound weakened against the U.S. dollar during Asian trading on Wednesday, with GBP/USD drifting toward the 1.3425 area as investors positioned ahead of key U.S. economic releases. Renewed dollar demand and cautious sentiment ahead of U.S. Retail Sales and Producer Price Index data kept the pair under pressure, despite a broader constructive technical backdrop.
GBP/USD Pulls Back After Technical Breakout
Sterling’s recent advance was underpinned by a decisive breakout above the 1.3275–1.3280 zone, a key confluence of the 200-day simple moving average and the 38.2% Fibonacci retracement of the September–November decline. That move signaled a shift in medium-term momentum, encouraging bullish positioning.
With daily momentum indicators still holding in positive territory, technical analysts see scope for renewed upside if buying interest resumes. A sustained move beyond the 1.3365 region, which marks the 50% retracement level, could allow the pair to regain the 1.3400 handle. From there, attention would turn to the 61.8% retracement zone near 1.3455–1.3460, followed by the psychologically important 1.3500 level.
Key technical levels in focus include:
- Resistance: 1.3455–1.3460, then 1.3500
- Initial support: 1.3300 round figure
- Deeper downside risk: below 1.3200
A decisive break under 1.3200 would undermine the positive outlook, opening the door toward the 1.3145–1.3140 support area and potentially sub-1.3100 levels.
Fed Rate Cut Expectations Support the Dollar
Fundamental drivers are now taking center stage. Markets have priced in nearly a 90% probability that the Federal Reserve will cut its benchmark rate by 25 basis points at the conclusion of its policy meeting later on Wednesday. Such a move would mark the third rate cut this year, lowering the target range to 3.50%–3.75%.
However, investors are bracing for what many describe as a “hawkish cut.” Persistent inflation risks and a resilient U.S. labor market could prompt the Fed to signal a pause in early 2026. That tone has helped underpin the dollar in recent sessions, creating a headwind for GBP/USD despite expectations of near-term easing.
UK Policy Outlook Weighs on Sterling
On the UK side, domestic factors continue to cap sterling’s upside. Concerns over higher taxation following the autumn budget, alongside easing inflation pressures and a cooling labor market, have strengthened the case for further Bank of England policy adjustments.
Financial markets are now assigning roughly an 88% probability to a quarter-point rate cut at the BoE’s December meeting, reflecting growing confidence that inflation is moving sustainably lower. As a result, the pound remains sensitive to shifts in relative rate expectations between the UK and the U.S.
In the near term, GBP/USD appears caught between constructive technical signals and a fundamentally supportive dollar. With high-impact U.S. data and central bank guidance imminent, volatility is likely to remain elevated as traders reassess the balance between rate cuts, growth risks, and currency valuation.
