GBP/USD Weekly Forecast: Pound Sterling to remain highly volatile in UK data-packed week

The Pound Sterling (GBP) started off the week on a firm footing against the US Dollar (USD) and jumped to 1.3486 on Monday, following criminal charges against Federal Reserve’s (Fed) Chair Jerome Powell over cost overrun in the reconstruction of Washington’s headquarters.

However, the GBP/USD pair turned down steadily as the week passed after Bank of England (BoE) policymaker Alan Taylor delivered dovish comments on the monetary policy outlook, and investors shifted their focus to the Fed’s monetary policy decision scheduled later this month.

Pound Sterling turned upside down

The Pound Sterling gained sharply against the US Dollar on Monday after United States (US) federal prosecutors opened a criminal investigation into Fed Chair Powell over mismanaging funds in the reconstruction of Washington’s headquarters.

In response, Powell said that the “new threat is not about the renovation project but a pretext”. He also added that the threat of criminal charges is a “consequence of the Fed setting interest rates based on its assessment of the public interest rather than the president's preferences”.

Market experts viewed the accusation of cost overruns against Powell as an attack on the central bank’s independence, which could undermine US assets and impact the US sovereign rating in the long run.

It remained clear from US President Donald Trump’s comments over the past several months that he was unhappy with the Fed not reducing interest rates aggressively, criticizing Chairman Powell several times for the same.

On Tuesday, US President Trump criticized Fed’s Powell again after the release of the Consumer Price Index (CPI) data for December, which showed price pressures rising steadily, demonstrating his dislike for him for not prioritizing his economic agenda. “We have very low inflation. That would give ’too late Powell’ the chance to give us a nice beautiful big rate cut," Trump said.

Chiefs from global central banks came in support of Powell, stating that “Independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve”, and “we stand in full solidarity with the Fed System and its Chair Jerome H. Powell.”

However, the steady US CPI report on Tuesday provided relief for the US Dollar against the British currency, as it intensified speculation that the Fed will announce a pause in its ongoing monetary-easing campaign at its policy meeting later this month.

On Wednesday, dovish commentary from BoE’s Taylor on the monetary policy outlook dragged the Pound Sterling further against the US Dollar.

Taylor said in a speech on Wednesday that inflation could return to the central bank’s 2% target in mid-2026 more quickly than having to wait until 2027, and projected that interest rates could “normalise to neutral sooner rather than later”. In the December policy meeting, the BoE guided that the monetary policy will remain on a “gradual downward path”.

The impact of expectations for the Fed holding interest rates steady and BoE Taylor’s dovish commentary was significant for GBP/USD, restraining the pair from regaining ground despite strong United Kingdom (UK) monthly Gross Domestic Product (GDP) data for November on Thursday.

The Office for National Statistics (ONS) reported that the economy returned to growth after contracting 0.1% in both September and October. The GDP growth came in at 0.3%, stronger than estimates of 0.1%. Month-on-month (MoM) Industrial and Manufacturing Production also grew at a robust pace of 1.1% and 2.1%, respectively.

GBP/USD revisited a four-week low around 1.3360 on late Thursday as the US Dollar Index (DXY) posted a fresh six-week high at 99.50, following a few Fed officials. Kansas Fed Bank President Jeffrey Schmid and Atlanta Fed Bank President Raphael Bostic came out in support for modestly restrictive monetary policy stance, citing upside inflation risks. “We need to stay restrictive because inflation is too high," Bostic said, adding, “I expect inflation pressures will continue through 2026 as many businesses are still incorporating tariffs into prices.”

UK employment and inflation data to drive GBP next week

The major events for the Pound Sterling in January’s third week will be the release of UK employment data for the three months ending in November and the Consumer Price Index (CPI) data for December, which will be released on Tuesday and Wednesday, respectively.

Investors will pay close attention to both data for fresh cues on the BoE’s likely interest rate decision at its first monetary policy meeting of 2026 on February 5.

The UK ILO Unemployment Rate jumped to 5.1% in the three months ending October, the highest level seen since March 2021. Meanwhile, inflationary pressures cooled down for the second straight month in November after peaking in September.

Next week, investors will also focus on the UK Retail Sales data for December, and on the preliminary S&P Global Purchasing Managers’ Index (PMI) data for January for both the UK and the US.

During the week, US President Donald Trump could also reveal the name of the next Fed Chairman. In December, Trump said that he could announce Powell’s successor at the Fed sometime in January. The comments from Trump in his latest interviews indicated that White House Economic Adviser Kevin Hassett, former Fed Chair Kevin Warsh, and current Fed Governors Christopher Waller and Michelle Bowman are major contenders to replace Jerome Powell.

GBP/USD Technical Analysis

In the daily chart, GBP/USD trades at 1.3404. The 21-day Simple Moving Average (SMA) rises above the longer ones, while the 50- and 200-day SMAs advance and the 100-day SMA flattens. Price holds above the 50- and 100-day averages but sits beneath the 21-day, with the 200-day SMA at 1.3406 acting as immediate resistance and the 100-day at 1.3365 supporting. The Relative Strength Index (RSI) at 48 (neutral) edges higher but remains below the midline, indicating subdued momentum.

A break above the 200-day SMA at 1.3406 could open a path toward the rising 21-day SMA at 1.3460, while a pullback would shift focus to the 100-day SMA at 1.3365 and then the 50-day at 1.3335. The upward slope of the 200-day SMA underpins the medium-term bias, but traction would improve if the RSI reclaims 50. A sustained move through nearby resistance would favor an extension toward the short-term average, whereas failure to gain above the long-term gauge would keep the pair contained within the moving-average cluster.

(The technical analysis of this story was written with the help of an AI tool.)