Bullish view

• Buy the GBP/USD pair and set a take-profit at 0.3785.
• Add a stop-loss at 1.3500.
• Timeline: 1-2 days.

Bearish view

• Sell the GBP/USD pair and set a take-profit at 1.3500.
• Add a stop-loss at 1.3785.
   

(Click on image to enlarge)

The GBP/USD exchange rate jumped to the highest level since September last year, continuing an uptrend that started in November last year when it bottomed at 1.3017. It rose after the UK published strong macro numbers, raising the odds of a Federal Reserve and Bank of England divergence.
 

Potential Federal Reserve and Bank of England Divergence

The GBP/USD exchange rate continued rising after the UK published strong inflation and retail sales data. A report released on Wednesday showed that the country’s inflation rose to 3.4% in December. It was the first time that the country’s inflation rose in five months.

Core inflation, which excludes the volatile food and energy prices, also remained above 3% during the month. Still, policymakers believe that inflation will continue falling in the coming months, and possibly hit the 2% target in the coming months.

Another report showed that the country’s retail sales continued rising in December, helped by the holiday season. Data shows that retail sales rose by 0.4% in December, higher than the 0.1% decline that analysts were expecting. This sales growth happened as consumer confidence rose to the highest level since 2024.

These numbers mean that the country’s economy is doing better than expected. As a result, analysts believe that the Bank of England may diverge from the Federal Reserve, which has maintained a relatively dovish tone despite the improving economy..a report released last week showed that the UK economy grew by 4.4% in the third quarter.

The other key catalyst for the GBP/USD pair will be the upcoming Federal Reserve interest rate decision, which will come out on Wednesday. Economists believe that the bank will leave interest rates unchanged between 3.50% and 3.75%.
 

GBP/USD Technical Analysis

The daily timeframe chart shows that the GBP/USD exchange rate has continued its strong uptrend in the past few months, and is now trading at its highest level since September 17. It rose after forming a bullish flag pattern, which is made up of a vertical line and a descending channel.

The pair has remained above the 50-day and 100-day Exponential Moving Averages (EMA) and the 23.6% Fibonacci Retracement level. It also moved above the Supertrend indicator.

The pair will likely continue rising as bulls target the next key resistance level at 1.3786, its highest level in July 2025.

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