GBP/USD Price Forecast: Gains ground above 1.3650, overbought RSI signals potential pause

GBP/USD strengthens to around 1.3685 in Tuesday’s early European session.
The positive view for the pair remains intact, but further consolidation cannot be ruled out amid an overbought RSI.
The first support level to watch is 1.3480.

Lallalit Srijandorn FXStreet

The GBP/USD pair extends the rally to near 1.3685, the highest since September 17, 2025, during the early European session on Tuesday. The Pound Sterling (GBP) edges higher against the US Dollar (USD) on the stronger-than-expected UK Retail Sales and Purchasing Managers’ Index (PMI) data. These upbeat reports have led some analysts to predict a potential delay in further Bank of England (BoE) rate cuts.

On the USD’s front, concerns over the Federal Reserve (Fed) independence and worries about another US government shutdown could weigh on the US Dollar. US President Donald Trump could announce the name of the Fed’s next chairman sometime in January. Traders worry that the US central bank would lose its independence after the appointment of a Trump candidate as Fed Chairman.

Markets might turn cautious ahead of the Fed interest rate decision on Wednesday. The US Fed is widely expected to hold interest rates steady at its policy meeting on Wednesday, following three consecutive cuts at the end of 2025. Traders will closely monitor Fed press conference following the policy meeting, as it could provide important clues for the months ahead. Any hawkish remarks from Fed officials could underpin the Greenback and act as a headwind for the major pair.

Technical Analysis:

In the daily chart, GBP/USD holds well above the rising 100-day EMA at 1.3385, maintaining a firm bullish bias. The average slopes higher and pullbacks would be expected to hold above it. RSI(14) prints at 72, overbought and prone to a pause in momentum. Initial resistance aligns with the upper Bollinger Band at 1.3656, while the 20-day middle band offers first support at 1.3480.

Bollinger Bands widen, underscoring rising volatility as price pushes beyond the upper band and leaves the advance stretched. If momentum fades, a pullback could target the mid-band, with deeper support at the lower band at 1.3306. Holding above the band breakout would keep the topside bias intact, though the setup carries elevated snapback risk.

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

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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