The market's anticipation of the Bank of England implementing two additional interest rate cuts by 2026 continues to intensify, potentially dampening traders' aggressive bullish positions on the GBP and constraining the GBPUSD currency pair's momentum. Traders are likely to adopt a wait-and-see approach ahead of the release of upcoming U.S. inflation data—specifically, the Consumer Price Index and Producer Price Index—scheduled for Tuesday and Wednesday this week. Additionally, the UK’s monthly GDP report due on Thursday is expected to provide some upward impetus for the GBPUSD pair in the latter half of the week. Recently, political developments in the UK have centered around two critical issues: intense disputes during post-Brexit negotiation re-engagement with the EU and the UK’s ongoing substantial military support to Ukraine. These issues collectively delineate the UK’s positioning within a complex international landscape. The UK-EU negotiations have become entangled in the controversy surrounding the so-called “Farage clause.” During the UK Labour Party’s Starmer-led efforts to revive Brexit negotiations, the EU proposed a highly contentious safeguard mechanism—referred to privately as the “Farage clause”—which stipulates that if the UK unilaterally withdraws from the agreement in the future, it must pay substantial compensation to the EU to cover potential additional costs, such as border quarantine infrastructure. This measure aims to mitigate the risks associated with political upheaval, particularly in light of the possibility of Nigel Farage, a staunch Eurosceptic reformist, returning to power.

Despite the global risk-off sentiment intensifying and market expectations of a more aggressive easing stance by the Federal Reserve diminishing, concerns over the Fed's independence have resurged, exerting downward pressure on the US dollar and strengthening the GBPUSD exchange rate. In fact, Fed Chair Jerome Powell stated in a release that the U.S. Department of Justice is threatening to bring criminal charges against him. Powell added that the basis for potential prosecution is because the Fed has consistently prioritized public interests over aligning with the President's preferences. Last Friday, the U.S. Department of Labor released December employment data showing a net increase of 50,000 jobs, below the Reuters survey's forecast of 60,000, while the unemployment rate decreased from the revised 4.5% in November to 4.4%. Following this data release, market traders are betting that Powell will conclude his rate cuts before his term ends on May 15, with subsequent monetary policy decisions likely to be transferred to his successor, appointed by President Donald Trump, whose candidate is expected to be announced this month. Reflecting on last year's policy measures, the Federal Reserve, under Powell's leadership, reduced the benchmark federal funds rate by a cumulative 75 basis points to prevent further weakening of the labor market. This move sparked concerns among hawkish colleagues, who believed that rate cuts might delay or even jeopardize inflation returning to target levels. The latest employment figures have provided the Fed with policy buffer space, enabling it to keep short-term borrowing costs steady to continue containing inflation—aligning with Powell's policy stance last month, which indicates a preference among policymakers to maintain the status quo in the near term.

In the 1D timeframe, the GBPUSD pair has experienced a correction and stabilized near the middle Bollinger Band. The MACD has generated a death cross, with the MACD line and signal line currently pulling back toward the zero-axis at a considerable distance, indicating the corrective phase is incomplete. The RSI's peak has begun to decline, likely retracing toward the EMA50 or EMA200 at approximately 1.336 and 1.3288, respectively. With an RSI reading of 53, market sentiment remains cautious. In the 4H timeframe, Bollinger bands are narrowing, SMAs are flattening, and the price has broken above the descending channel's upper boundary. The MACD's bearish momentum is diminishing, and a golden cross is imminent for the MACD line and signal line, suggesting a short-term bullish momentum. Resistance levels are identified around the EMA50 and psychological round figures at approximately 1.345 and 1.35. The RSI stands at 47, indicating market sentiment remains somewhat bearish but shows signs of recovery, with the RSI lows gradually rising. Therefore, it is recommended to go long before going short.

Trading Direction: Buy

Entry Price: 1.34

Target Price: 1.36

Stop Loss: 1.33

Support: 1.33, 1.29, 1.28

Resistance: 1.35, 1.36, 1.373