Sterling Edges Higher as GBP/USD Rebound Gains Technical and Policy Support

Key Moments

GBP/USD has recovered from the 1.3100 area and is now challenging the 1.3500-1.3520 zone after forming a pattern of higher lows.
The pair is holding above rising 15-day and 20-day moving averages, with RSI (14) near 61 and staying above 50 during recent dips.
A daily close above 1.3600 would signal a bullish breakout, while a move below 1.3320 would undermine the recovery and refocus attention on 1.3200.

Technical Setup: Sterling Recovery Builds Momentum

GBP/USD has extended its rebound from recent lows, reclaiming important chart levels as both price action and momentum indicators turn more supportive. Although the broader range-bound structure is still in place, the short-term tone has shifted toward a mildly bullish bias, with sterling drawing strength from a comparatively supportive policy backdrop against the US dollar.

On the daily timeframe, the pair has carved out a sequence of higher lows since bouncing from the 1.3100 region, signaling an improvement in the near-term trend following a prior corrective move.

Spot is trading above the 15-day and 20-day moving averages, with both averages starting to slope higher.
Recent declines have been limited in depth, indicating dip-buying interest rather than aggressive selling pressure.
Price is currently probing a key horizontal band around 1.3500-1.3520, an area that has repeatedly acted as both a floor and a ceiling.

Key Price Levels: Resistance and Support Map

The current structure can be summarized through the following key technical reference points:

Type	Zone / Level	Implication
Resistance	1.3520-1.3600	Major overhead zone and prior range highs; a decisive daily close above 1.3600 would confirm a bullish breakout and open 1.3720-1.3800.
Upside Target	1.3720-1.3800	Projected objective if 1.3600 is cleared on a closing basis.
Support	1.3450-1.3480	Initial support area near the short-term moving averages.
Support	1.3320-1.3350	Deeper structural support; a break below 1.3320 would undermine the recovery narrative and shift focus back toward 1.3200.

Momentum Signals: Bullish but Not Overstretched

Momentum indicators are broadly aligned with the constructive price action.

RSI (14) is hovering near 61, pointing to strengthening bullish momentum without yet entering classic overbought territory.
During recent pullbacks, RSI has consistently held above the 50 mark, a typical hallmark of a supportive momentum backdrop.
This pattern reinforces the assessment that the current advance has a constructive character rather than being a short-lived technical spike.

Fundamental Backdrop: BoE Stance Lends Support to Sterling

Bank of England: Restrictive Tone Underpins GBP

The pound has been underpinned by the Bank of England’s relatively restrictive messaging, especially when set against the policy stance of other major central banks.

Key elements supporting GBP include:

UK inflation remains elevated, particularly in the services sector.
Wage growth is still running above levels typically associated with the BoE’s inflation goal.
In response, policymakers have emphasized caution about cutting rates too quickly.

Market participants now anticipate a more measured path of BoE easing than previously assumed, helping to provide a floor for sterling.

Federal Reserve and USD: Waning Dollar Impulse

On the US side, the dollar has shown signs of moderating strength as several dynamics evolve:

Inflation readings have indicated gradual cooling.
Economic growth remains solid, but upside surprises have become less pronounced.
Investors are increasingly factoring in eventual Federal Reserve easing, even though the exact timing is unclear.

These shifts have marginally reduced the US dollar’s yield premium, giving GBP/USD room to rebound from previously oversold conditions.

Sterling hit its highest in nearly four months against both the #dollar and #euro on Tuesday, buoyed by improved global investor sentiment, easing worries about Britain's fiscal position and hints of Britain pursuing a closer relationship with Europe. #mercurydailybrief pic.twitter.com/FzLEKkqjy9
— Mercury Global (@mercuryfxglobal) January 7, 2026

Rate Differentials: Narrower Gap Between BoE and Fed

While US interest rates stay high in absolute terms, the relative policy spread between the Federal Reserve and the Bank of England has narrowed. This has eased some of the earlier structural pressure that weighed on sterling.

Provided that UK data holds up, GBP/USD appears less exposed to persistent downside driven solely by rate expectations.

Forward Scenarios: Pathways for GBP/USD

Bullish Continuation Case

Holding above 1.3500 and then establishing a clear daily close above 1.3600 would validate a continuation of the current upswing.
In that scenario, the 1.3720-1.3800 band comes into view as the next upside objective.
This trajectory would likely be accompanied by firm UK data or softer US inflation outcomes.

Range-Bound or Pullback Scenario

Failure to overcome resistance could keep GBP/USD confined within a 1.3320-1.3600 trading range.
A retracement toward 1.3350-1.3400 would remain compatible with a constructive technical profile, as long as 1.3320 holds.

Strategic Bias and Key Risks

Overall, GBP/USD has transitioned from a defensive posture to a cautiously constructive one, backed by firmer technical signals and a relatively restrictive Bank of England stance. The pair is still moving within a broader range, but the near-term risk balance has shifted modestly to the upside.

Medium-term bias: Neutral to bullish
Short-term outlook: Constructive, but highly sensitive to price action around resistance levels
Key risk: A sharp re-pricing of BoE rate expectations or a renewed surge in US dollar strength