The British Pound (GBP) is finally facing a reality check this Friday as the London session hands over the reins to New York. After a week of relentless “Greenback bashing” that saw the pair scale levels not seen since September 2021, the tide is turning. The US Dollar, previously left for dead, has staged a defensive comeback as rumors of a “market-friendly” Fed Chair nomination swirl and Washington lawmakers finally move to avert a partial government shutdown.
Trump’s “Hawkish” Fed Choice: Kevin Warsh and the USD Lifeline
The primary catalyst for today’s market reversal is the impending nomination of former Federal Reserve Governor Kevin Warsh to succeed Jerome Powell. The Guardian noted this morning that while Warsh has recently aligned himself with the White House’s push for lower interest rates, he has historically been seen as a “monetary policy hawk” with a record of criticizing ultra-loose policy and the Fed’s expanded balance sheet.
This perception of Warsh as a “credible hawk” has triggered a relief rally in the Greenback. Analysts highlight that the pick suggests a desire to “calm speculation on Fed independence loss,” which has historically been a major bearish pressure for the Dollar. As the news spread, the Dollar Index (DXY) climbed 0.4% to 96.505, putting immediate pressure on the GBP/USD pair.
Why Removing the Shutdown Threat Calms Investors
Just 24 hours ago, the “Sell America” trade was fueled by fears of a January 30 government shutdown. However, Senate Majority Leader Chuck Schumer’s office confirmed a deal to decouple DHS funding, effectively ensuring the government stays open.
I beleive that this optimism is a key factor exerting pressure on spot prices for GBP/USD, as the fundamental “fear trade” that was driving the Pound higher is now being priced out of the market.
Bank of England Outlook: Why the Pound Holds Firm Near 1.37
Despite renewed strength in the US dollar, the British pound has avoided a sharp selloff and continues to trade resiliently near the 1.37 level. The key support comes from the UK’s persistent inflation problem, with headline CPI rising to 3.4% in December, above market expectations.
The inflation spike may prove temporary, but it is still significant enough to take an immediate rate cut off the table when the Bank of England’s Monetary Policy Committee meets next week. That stance contrasts with growing uncertainty around the Federal Reserve’s policy path, where easing expectations remain fluid.
This divergence in central bank outlooks is underpinning the pound. With the BoE forced to maintain a more restrictive posture, sterling continues to find buyers on dips. As analyst Christopher Lewis notes, the currency has developed a “stoic” quality, holding well above its 2025 averages and resisting broader dollar-driven pressure.
GBP/USD Technical Analysis: Momentum Cools Below the 1.3871 Ceiling
From a technical standpoint, GBP/USD appears to be losing upside momentum after an extended run higher, with price action shifting into consolidation rather than continuation.
Key Levels to Watch
- Support: 1.3747, followed by 1.3670
- Resistance: 1.3813, then the major ceiling at 1.3871
As long as GBP/USD remains capped below 1.3871, rallies are likely to be corrective, while a loss of support near the 100-hour SMA would shift focus toward deeper retracement levels.
Conclusion: Is the 1.40 Dream Dead for Now?
The GBP/USD forecast has shifted from “full-throttle bullish” to “cautiously neutral.” While the multi-year uptrend from the 1.030 lows remains intact, the “Warsh Wave” and the resolution of the US budget crisis have removed the primary engines of the Dollar’s decline. Unless the Bank of England delivers a massive hawkish surprise next Thursday, investors should expect the Pound to trade in a range between 1.3650 and 1.3850 as the market awaits the official confirmation of the next Fed Chair.
GBPUSD FAQs
The risk has diminished following a bipartisan Senate deal to fund the DHS. Furthermore, the 94% probability of Kevin Warsh being named Fed Chair is seen as a “hawkish” signal that is boosting the US Dollar.
Yes. Technical analysis shows that the 1.2000 psychological level has acted as a multi-year “brick wall” for the EURUSD. Traders are currently observing a cluster of sell orders at 1.1970–1.2010. For the EURUSD to sustain a breakout, it would require a significantly dovish surprise from the US Federal Reserve or a major hawkish shift from the ECB.
The “Warsh Factor” is a net-bearish catalyst for the EURUSD. Because Kevin Warsh is perceived as a “credible hawk” who favors tighter monetary control, his potential leadership is causing US Treasury yields to rise. This attracts capital away from the Euro and into the US Dollar, shifting the immediate EURUSD forecast from bullish to neutral-bearish.