GBP/USD Forecast: The Pound Gains Ground Ahead of the Fed Minutes Release

The strong bullish trend in GBP/USD has pushed the pair up more than 2% over the last six trading sessions, with the pound leading the way as it benefits from the short-term depreciation of the U.S. dollar. The greenback has continued to lose ground as the market digests last week’s inflation data and awaits the release of the Federal Reserve minutes tomorrow.

The Role of the Bank of England

It has only been a few sessions since the Bank of England (BoE) decided to keep its interest rate unchanged at 4.5% on February 6, a decision based on the revised growth projections for the UK economy, which were adjusted from 1.5% to 0.75% for 2025.

However, today’s employment data shows that the UK unemployment rate remains at a solid 4.4%, lower than the 4.5% expected. Additionally, employment change data reveals the creation of 107,000 new jobs, significantly surpassing the 35,000 reported in the previous release.

Given this scenario, it is possible that the Bank of England will adopt a more aggressive stance, keeping interest rates high for a longer period—something that has not happened in several months. This strategy aims to protect the economy from a potential inflationary surge driven by the strength of the labor market.

Now, it is important to highlight that both the United Kingdom and the United States have seen an upward trend in inflation since September 2024. Currently, U.S. inflation has already surpassed 3% annually, while UK inflation remains at 2.5%, according to the most recent official data. The goal of both central banks is to bring inflation down to 2% to prevent future economic imbalances. However, persistent inflation above this target could lead both institutions to maintain higher interest rates for an extended period.

Inflation Trends: U.S. vs. UK

Source: Tradingeconomics

On the other hand, for the first time in several months, both countries now have the same interest rate of 4.5%, as their central banks consider this level an essential reference point in the fight against inflation.

Interest Rates: U.S. vs. UK

Source: Tradingeconomics

Given this context, the pound’s recent strength is mainly due to the fact that fixed income yields in the UK continue to offer returns comparable to those in the U.S. This has prevented the emergence of a significant competitive advantage in interest rates between the two economies.

What has fueled demand for the British pound is that recent inflation data and U.S. tariff discussions have weakened investor confidence in U.S. markets. As a result, some capital has shifted to the UK, where bonds offer similar returns but with greater stability.

Tomorrow, the Federal Reserve is expected to clarify the path of its monetary policy. If a dovish stance is confirmed, selling pressure on the U.S. dollar could persist, allowing further appreciation of the pound sterling.

Technical Outlook for GBP/USD

Source: StoneX, Tradingview

• Potential New Trend: Since mid-January, GBP/USD has consolidated a bullish trend, breaking out of a sideways range that had been holding between the 1.25240 resistance and the 1.21779 support.

   

  With the new highs reached, it is now possible to draw a short-term uptrend line from January’s low to early February’s low. However, for this trend to fully consolidate, it must overcome a key resistance level, eliminating the sideways movement that has dominated the beginning of 2025.

   

  If the price continues to reach new highs in the short term, the bullish trend could gain further strength.

   

• RSI: The RSI line currently maintains a steady upward slope, reflecting the dominance of buying positions over the last 14 periods. However, as the RSI approaches the overbought level of 70, it may indicate an imbalance due to excessive buying pressure, which could lead to potential short-term pullbacks in GBP/USD.

   

• MACD: Meanwhile, the MACD remains above the neutral level of 0, indicating that recent movements reflected in the simple moving averages have been predominantly bullish. This confirms the strong buying pressure that has kept the pound in an uptrend.

   

  If the MACD and its histogram continue to fluctuate above the neutral level, the upward momentum is likely to persist.

   

   

  Key Levels:

   

• 1.27819: Major resistance. This level aligns with the 200-period simple moving average, making it the most critical barrier for the ongoing bullish trend. If the price manages to consolidate above this level, it could pave the way for larger bullish movements, reinforcing the new uptrend in the daily chart.

   

• 1.25240: Near-term support. This level coincides with the upper boundary of the previous sideways range. If the price falls back below this threshold, the current bullish trend could be at risk, leading to an extension of the consolidation phase that has been in place since early January.

   

• 1.21779: Distant support. This level corresponds to the lower boundary of the previous sideways channel. If the price drops back to this zone, the bullish bias would be completely invalidated, potentially triggering a bearish reversal.

Written by Julian Pineda, CFA – Market Analyst