GBP/USD extends gains as interest rate divergence captures focus

The GBP/USD pair advanced decisively to 1.3338, marking its highest level since late October. Sterling found support from an upward revision of the UK's November Services PMI, while the US dollar remained under broad pressure ahead of an anticipated Federal Reserve rate cut next week.

The UK Services PMI rose to 51.3 from a preliminary 50.5, remaining firmly in expansionary territory above the 50.0 threshold. The Composite PMI followed suit, climbing to 51.2.

Despite this improvement, S&P Global noted underlying softness, with business activity growth slowing and employment declining at the fastest pace since February. Furthermore, output price inflation fell to its lowest level since January 2021.

Markets continue to price in a 25-basis-point rate cut from the Bank of England in December. However, expectations are that the central bank will then enter a prolonged pause, wary of the persistent risk of renewed inflation.

Conversely, the US dollar remains on the back foot. Markets have fully priced in a third consecutive Fed rate cut for December, with at least two additional cuts anticipated in 2026. This widening interest rate differential is enhancing the pound's relative appeal.

Technical analysis: GBP/USD

Four-hour chart

On the H4 chart, GBP/USD continues its confident upward trajectory, approaching a key technical resistance level at 1.3354. The price is holding well above the middle Bollinger Band, confirming the dominance of the bullish trend. The expansion of the upper band signals rising volatility and sustained buying interest.

A decisive breakout and close above 1.3354 would open the path for an extension of the rally towards the next resistance zone around 1.3363–1.3380. Should a pullback occur, the nearest significant support is situated at 1.3280. A breach of this level would suggest a deeper correction, potentially targeting the lower Bollinger Band.

One-hour chart

On the H1 chart, GBPUSD maintains an upward bias following a powerful impulse that pushed the price to the 1.3350–1.3360 resistance zone. The pair is now correcting, remaining above the local support of 1.3179, from which the growth began earlier. The upper Bollinger Band has turned down after a sharp expansion, indicating short-term market overheating and increasing the likelihood of a pullback. Nevertheless, the structure remains bullish: holding the price above the middle Bollinger Band supports a retest of 1.3350.

A breakout of the 1.3350–1.3360 resistance will open the way to the next target in the 1.3400 area. A consolidation below 1.3179 will be the first signal for a deeper correction, with targets in the 1.3120-1.3140 demand area.

Conclusion

GBP/USD strength is driven by a clear divergence in central bank policy expectations, favouring sterling in the near term. Technically, the pair is in a firm uptrend but is testing a critical resistance level at 1.3354. A successful breakout here could accelerate gains, while a rejection may trigger a consolidation or correction towards 1.3280. The upcoming Fed and BoE meetings will be pivotal in determining whether this momentum can be sustained.