GBP/USD Outlook: Focus Shifts to US Employment Data

GBP/USD trades in a more cautious tone as attention turns firmly toward upcoming US employment data. The US dollar has regained some ground after failing to hold onto earlier gains yesterday, with initial volatility linked to developments in Venezuela quickly giving way to a renewed focus on economic data. A disappointing ISM manufacturing print initially weighed on the dollar, but softer German inflation helped the greenback stabilise, while GBP/USD met selling interest above the 1.3550 area and rotated back toward the 1.3500 handle.

With seasonal factors turning more supportive for the dollar and recent US data showing mild improvement late last year, there is scope for a more meaningful USD rebound following recent weakness. The near-term direction for GBP/USD now hinges largely on incoming US labour market data, which will shape expectations around Federal Reserve policy.

US Data in the Spotlight

Although safe-haven demand for the dollar faded quickly yesterday, the currency has managed a modest recovery. Seasonal trends offer some support, but follow-through will depend on whether economic data can challenge the more dovish expectations priced into the Fed outlook.

So far this week, the key release has been the ISM Manufacturing Index, which slipped below 48 in December, marking the fourth consecutive monthly contraction and the weakest reading since October 2024. That softer backdrop sets the stage for today’s ISM Services survey, followed by ADP employment and JOLTS job openings data. The main event remains Friday’s Non-Farm Payrolls report, which is likely to be pivotal for short-term dollar direction.

Pound Outlook Remains Secondary

Over the past year, GBP/USD has been driven more by dollar dynamics than by pound-specific factors. UK inflation has cooled faster than expected, with the November CPI easing to 3.2% year-on-year. This supports the Bank of England’s view that inflation could move closer to its 2% target by spring, increasing the likelihood of a more accommodative policy stance in the months ahead.

Markets are currently pricing in one additional 25 basis point rate cut to 3.5%, though the path beyond that remains data-dependent. If inflation continues to decelerate alongside softer growth, the BoE may be forced to ease more aggressively, potentially pushing rates toward 3% by late 2026. Such a scenario would likely increase downside risks for the Pound as yield support diminishes.

GBP/USD Technical Outlook

From a technical perspective, GBP/USD continues to post a sequence of higher highs and higher lows, with a solid base in place since November. However, momentum has begun to fade, and the lack of strong upside follow-through suggests buyers may be losing conviction as price trades into a broader long-term resistance zone.

The 1.3500 area remains a key short-term pivot. A failure to hold this level could leave recent longs vulnerable and open the door to a deeper corrective move. Initial support is located near 1.3400, which also aligns closely with the 200-day moving average. A sustained break below this zone would raise the risk of a more pronounced trend reversal.

On the upside, 1.3550 stands out as immediate resistance, with further supply likely to emerge near 1.3620. Until price can clear these levels decisively, the near-term outlook remains increasingly indecisive.

 GBP/USD Daily Chart

Bottom Line

GBP/USD sits at an important crossroads as markets await clarity from US employment data. While the broader trend remains constructive, fading momentum near resistance and a data-heavy calendar raise the risk of increased volatility. How the pair reacts around the 1.3500 handle and the 1.3400 support zone will be key in defining the next directional move.