As expected after such a strong GBP reaction, the GBP/USD currency pair found support at, then stability around, 1.3430 USD on Thursday. Additionally, the UK released some stronger counter growth data that was better than expected. This piece of news helped improve investor sentiment on the Savior of the pound. The net long dollar position of the dollar against the sterling fell to 2.577 billion USD. This is a notable drop from the 6.586 billion USD in cash at the end of December. This is the sharpest weekly drop in dollar short positioning on the pound since Sept 2019.
The more recent economic data have really flipped that market dynamic on its head with traders reassessing the play. The sudden drop in the net long dollar position reflects that investors have a growing conviction over the pound’s newfound strength. This pivot is part in response to unexpected signs of strength in the UK economy. We offer both the fundamentally supportive data and the technical indicators suggesting short-term challenges lie ahead for the GBP/USD pair. Traders need to be careful as these signals develop.
The Moving Average Convergence Divergence (MACD) indicator favors a bearish outlook for the GBP/USD pair at the moment. The MACD signal line continues to sit below zero and is angled sharply downward, indicating that additional moves lower may be around the corner. While the pair is definitely a valid medium- to long-term bull play, near-term bias is still bearish, with key supports at 1.3395 USD and 1.3290 USD. If the currency pair firm down beneath these zones, it would add fuel to drives declines more.
Analysts have been waiting to see how these support levels hold up. Downside A breach would set off a downtrend direction towards 1.3290 USD and maybe even further to 1.3220 USD. Market participants have been laser-focused on the latest inflation prints. This information showed that inflation in the UK moderated much sooner than anticipated as 2025 drew to a close. Markets are pricing in at least two expected rate cuts by the Bank of England (BoE) in the second half of 2023. This policy change has fueled those expectations.
The GBP/USD pair will require more firm economic data from the UK to engender a sustained recovery. This data needs to be off the charts over the next week. Investor attention is still clearly on the next key economic indicators, which might move monetary policy and set short-term market sentiment at least. If the pound is to gain a meaningful leg up, the data will need to bear out this improving trend. That would go a long way to offset the discouraging trends that technical analyses have found.