The GBP/USD exchange rate has come under renewed pressure despite the release of strong UK economic data, as investors remain cautious ahead of key macroeconomic releases and escalating geopolitical trade risks. While the British pound initially benefited from better-than-expected growth figures, sterling momentum faded, allowing the US dollar to regain ground. FlexFlume experts offer a detailed and insightful analysis of the subject.
At the same time, technical indicators suggest that the current pullback may be corrective rather than trend-reversing, with a bullish falling wedge pattern emerging on the daily chart. With UK jobs and inflation data due soon, traders are positioning for a potentially volatile move.
Sterling Slips Ahead of UK Macro Data
The GBP/USD exchange rate pulled back sharply as traders digested recent UK macroeconomic releases alongside new developments from the United States. The currency pair declined even after the Office for National Statistics (ONS) published data showing that the UK economy expanded faster than expected.
According to the ONS report, gross domestic product (GDP) grew by 0.3% in November, outperforming the median forecast of 0.1%. This expansion was largely supported by the services sector, which also rose by 0.3%, while industrial production surged by an impressive 1.1%.
A key contributor to the stronger data was the ongoing recovery of Jaguar Land Rover, which has rebounded following last year’s cybersecurity breach. Despite these encouraging signs, the pound failed to attract sustained buying interest.
US Tariffs Weigh on GBP Sentiment
Adding to the pressure on sterling was a surprise announcement from the US President, who revealed plans to impose new tariffs on UK goods entering the United States. Under the proposal, UK exports will initially face a 10% tariff, which could rise to 25% if geopolitical negotiations surrounding Greenland do not progress.
This development has increased uncertainty around the UK’s trade outlook, raising concerns over export competitiveness and corporate earnings. As a result, risk sentiment deteriorated, prompting investors to reduce exposure to the pound despite improving domestic fundamentals.
Focus Turns to UK Jobs and Inflation Data
Market attention is now firmly focused on upcoming UK macroeconomic data, which will play a crucial role in shaping expectations for the Bank of England’s (BoE) monetary policy.
UK Labour Market Outlook
The UK will publish its latest employment report on Tuesday. Economists expect the unemployment rate to edge lower from 5.1% to 5.0%, signaling continued resilience in the labour market despite tighter financial conditions.
A stronger-than-expected labour report could reinforce expectations that the BoE will maintain a restrictive stance, especially if wage growth remains elevated.
Inflation Data and BoE Implications
On Wednesday, the ONS will release the latest UK inflation figures, which are closely watched by policymakers and forex traders alike. Forecasts suggest that headline CPI is expected to hold steady at 3.3%, while core CPI is projected to rise to 3.3%, indicating persistent underlying inflationary pressure. Meanwhile, the Retail Price Index (RPI) is forecast to accelerate to 4.0% from 3.8%, signaling a renewed uptick in broader price growth.
If these estimates prove accurate, inflation would remain well above the BoE’s 2% target, reinforcing the view that interest rate cuts may be delayed. Persistent inflationary pressures could provide medium-term support for GBP, even if short-term volatility persists.
GBP/USD Technical Analysis
From a technical perspective, the daily chart shows that GBP/USD has been in a controlled pullback after rallying strongly from 1.3015 in November to 1.3565, its highest level of the year.
The pair has now slipped below the 23.6% Fibonacci retracement level as well as the 25-day Exponential Moving Average (EMA), a move that signals weakening short-term momentum and increases the risk of further downside pressure.
These signals indicate short-term bearish momentum, but the broader structure remains constructive.
GBP/USD Forecast and Trading Outlook
Given the technical setup and the approaching high-impact UK data, the most likely scenario is a bullish rebound once the wedge resolves. A confirmed breakout could see GBP/USD retest the year-to-date high at 1.3565, with potential extension if inflation data reinforces a hawkish BoE narrative.
However, failure to hold above 1.3300 support would invalidate the bullish setup and expose the pair to deeper downside risks.
Conclusion
Despite near-term weakness driven by trade uncertainty and positioning ahead of data, the GBP/USD outlook remains cautiously bullish. Strong UK fundamentals, persistent inflation, and a favorable technical pattern suggest that the pound may regain strength once macro risks are clarified. Traders should remain alert as jobs and inflation data could act as the catalyst for the next major move.
