• GBP/USD outlook remains trapped amid rate cut odds in both the UK and the US.
• Weakening US data intensifies the odds of the US Fed easing next week.
• Any signs of recovery in the US economy while heading into 2026 could limit the sterling gains.

The GBP/USD price remained trapped on Thursday between fading UK optimism and firm odds of rate cuts on both sides of the Atlantic. The markets are increasingly wary of chasing highs after a steep rebound.

The pair extended its winning streak to 1.3384, the strongest level since late October, before retreating to 1.3325 by the end of the session. The initial euphoria following the UK Autumn Budget is fading as the markets now acknowledge that the Bank of England is on the verge of a rate cut. The budget was framed as supportive of growth. Economists note that the risk of reigniting inflation is negligible, clearing the path for the BoE to resume its easing cycle. Futures markets are now anticipating a 90% chance of a 25-basis-point rate cut.

On the US side, the Federal Reserve is expected to maintain the same narrative with a 90% probability of a rate cut next week. However, the uncertainty lies in the message, as historically, the Fed Chair’s press conference generates volatility. The markets are bracing for mixed signals, as the US economy could regain strength in 2026, which may provide a respite from short-term dollar weakness. For sterling, it means the near-term rallies remain vulnerable to pullbacks.

Thursday’s US data did little to lend support to the US dollar. Initial jobless claims dropped to 191k, the lowest level since September 2022, well above the estimates. Meanwhile, continuing claims slightly fell to 1.939 million, but challenger layoffs climbed to 24% YoY, still sharply lower than October. This paints a mixed picture of US labor market conditions. However, the markets shrugged off the data, maintaining the expectations of Fed easing next week, especially after the weak ADP report on Wednesday.
 

GBP/USD Key Events Ahead:

The two major events for the day include:

• US PCE Price Index
• UoM Consumer Sentiment

Any downward revision could push the GBP/USD for a significant rally towards 1.3400, while an upside surprise could drag the price around/below 1.3300.
 

GBP/USD Technical Outlook: Neutral Above Demand Zone
 

(Click on image to enlarge)

GBP/USD 4-hour chart
 

The GBP/USD formed a bearish pin bar candle on the 4-hour chart, while the RSI also indicates overbought conditions. However, the price remains well above the demand zone and 20-period MA confluence around 1.3280. A sustained breakout could test the 50-period MA near 1.3250 ahead of the 200-period MA near 1.3200.

On the flip side, breaking above the last day’s highs of 1.3384 will shrug off the pin bar pressure and look to gain above the 1.3400 level. The ultimate resistance level appears at 1.3470.

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