FX Outlook: Key Catalysts Ahead for GBP/USD and USD/JPY

GBP/USD and USD/JPY Forecast: Two Trades to Watch

GBP/USD and USD/JPY are both entering short-term inflection zones as markets digest fresh UK inflation data and position ahead of President Trump’s speech at the World Economic Forum. Modest US dollar recovery has paused recent trends, leaving both pairs vulnerable to directional follow-through depending on political messaging and upcoming central bank communication.

GBP/USD Outlook: CPI Data Absorbed, Dollar in Focus

GBP/USD has slipped back from session highs, trading around the 1.3440 area as the US dollar stabilises modestly and markets digest UK inflation figures.

UK CPI rose to 3.4% year on year, slightly above expectations and up from the previous month. The increase was largely driven by one-off factors, including higher tobacco duties and airfares. Core inflation remained unchanged at 3.2%, while service sector inflation edged higher to 4.5%, a smaller rise than anticipated and a key metric closely watched by the Bank of England.

Importantly, the inflation data has not materially altered expectations for BoE policy. Markets continue to price a single 25 basis point rate cut by year-end, with policymakers still forecasting a return to the 2% inflation target by spring. As a result, GBP price action remains more sensitive to US dollar dynamics than domestic data.

Attention now turns to Trump’s speech in Davos. Any escalation in tariff rhetoric or renewed focus on Greenland could reignite USD selling, while a softer tone could allow the dollar to recover further, weighing on GBP/USD.

GBP/USD Technical Outlook

GBP/USD remains range-bound but constructive, holding above the 200-day simple moving average. RSI remains above the 50 level, suggesting modest upside momentum is still present.

A break above 1.3485 would be needed to unlock upside toward 1.3550, the 2026 high. On the downside, support is located at 1.3400, which aligns with both the 200-day average and horizontal price support. A sustained move below this level would expose 1.3350, the January low, and mark a potential shift in near-term structure.

GBP/USD Daily Chart

USD/JPY Outlook: Political Risk Meets BoJ Uncertainty

USD/JPY is struggling to find direction as both the US dollar and Japanese yen face separate sources of pressure. The pair has stabilised following sharp USD losses earlier in the week, triggered by US tariff threats and concerns over US leadership credibility.

At the same time, the yen has weakened following Japan’s snap election announcement and pledges of looser fiscal policy. Bond markets reacted sharply, with long-dated Japanese government bond yields surging to record highs, a combination that signals investor discomfort with the policy outlook.

The yen has fallen to record lows against the Swiss franc and is approaching similar levels versus the euro. This backdrop keeps USD/JPY supported despite broader USD uncertainty.

Markets are now focused on Friday’s Bank of Japan meeting. While no rate change is expected after December’s hike, guidance and tone will be critical. A continued hawkish bias could offer some near-term support to the yen.

USD/JPY Technical Outlook

USD/JPY remains in a broader uptrend, defined by higher highs and higher lows since September. Price recently stalled near 159.15, an 18-month high, before easing toward the 158.00 region where rising trendline support is being tested.

A renewed push above 159.15 would open the door toward 160.00 and potentially 162.00, the 2024 high. On the downside, a break below the 158 support zone would bring the 50-day moving average at 156.40 into focus. Below that, 154.50, the December low, becomes the next key downside level.

USD/JPY Daily Chart

Bottom Line

GBP/USD remains supported structurally but lacks near-term conviction without clarity on US political risk. USD/JPY continues to reflect underlying yen weakness, though political and central bank events could inject volatility. Trump’s Davos speech and the Bank of Japan meeting stand out as key catalysts that could determine the next directional move in both pairs.