- The GBP/USD pair's upsurge can be traced back to the British Chancellor's Autumn Budget statement which triggered positive sentiment
- The Fed's recent interest rate cut is seen as a continuation of a cautious stance, shaking investor confidence regarding US economy relative to UK's
- FOMC Minutes will be out today and could carry a surprise outlook of 2026
Since late November 2025, the British pound has steadily risen against the US dollar. The GBP/USD forex pair has bounced back from its autumn lows near 1.3000 and is now around 1.3500 as the year ends. What’s driving this comeback, and can it continue?
Why the Pound is Gaining Traction
The pound’s rise is mostly due to changing perception on the UK’s financial standing. The Autumn Budget in late November, presented by Chancellor Rachel Reeves, offered some relief. Investors were worried about large tax increases that could slow growth, but the actual plans were seen as more balanced and responsible. This boosted confidence in UK bonds and helped the pound recover from its seven-month lows.
Additionally, strong UK business activity data, as highlighted by EBC, contributed to the pound’s strength. The S&P Global PMI surveys showed robust services sector growth, signaling economic resilience amid global uncertainties.
On the other side, the US dollar has weakened because the Federal Reserve is seen as being more cautious. The Fed cut its rate by 0.25% in December, bringing it to 3.50%-3.75%, because inflation is cooling and the job market is weakening. This has led investors to expect more easing, which is pushing the dollar down.
GBP/USD 2026 Outlook
Looking ahead to 2026, the outlook for GBP/USD appears cautiously optimistic. J.P. Morgan Global Research forecasts the pair reaching 1.36 by December 2026, driven by diverging monetary policies: the Bank of England is expected to cut rates more slowly than the Fed, supporting the pound. Yet, risks abound. MUFG Research warns of potential GBP weakness against the euro, which could indirectly pressure GBP/USD if eurozone growth outperforms.
While the Bank of England is expected to be cautious with its own rate cuts due to persistent services inflation, the Fed is widely expected to be more aggressive in easing.
Will Fed Minutes Break the Spell?
The release of the Federal Reserve meeting minutes is coming up, so there’s reason to be cautious. These minutes will detail the discussions behind the Fed’s rate cut in 2025. If the notes suggest a hawkish stance, the dollar could see a sharp recovery. Right now, most analysts think the pound has the advantage, as long as the minutes don’t drastically change interest rate expectations.
GBP/USD Forecast Today
The GBP/USD pair shows strong upward movement on the daily chart, wiyh the pivot at 1.3500. The RSI is around 69, which means the price is still rising but isn’t overbought (above 70), so it could go higher. The next resistance level is at 1.3557, near the upper Bollinger Band, and action past that level could strengthen the momentum to test 1.3600. On the downside, the first support level is at 1.3450. If the price falls further, there’s strong support around 1.3394, aligning with the middle Bollinger Band zone.
GBPUSD daily chart on December 30,2025 with key support and resistance levels created on TradingView
The pound’s increase was supported by a UK budget that people liked, good business numbers, and a weaker US dollar because the Federal Reserve lowered rates. This made things good for the GBP/USD to go up.
If the minutes show the Fed might not lower rates as much in 2026, it could slow down the pound’s gains. The dollar would likely get stronger quickly, and the pair would experience a pullback.
Most analysts expect a bullish 2026 for the pair. Since the Fed is expected to cut rates more than the Bank of England, the difference in interest rates should help the pound get stronger.