– Written by


Ben Hughes

STORY LINK GBP/USD Forecast: Pound Sterling Loses Momentum as Dollar Firms on US Data

The Pound to US Dollar exchange rate (GBP/USD) drifted lower on Wednesday, easing back as investors digested a fresh batch of US economic data that lent modest support to the Dollar.

At the time of writing, GBP/USD was trading close to $1.3663, down around 0.2% from the start of the European session.

The US Dollar found some footing after the latest ISM services PMI signalled continued resilience in the US economy. January’s index held steady at 53.8, outperforming expectations for a slight dip to 53.5 and reinforcing the view that the services sector remains a source of strength.

Although the data lacked the punch of recent manufacturing releases, it was sufficient to underpin the Dollar and offset weaker labour market signals from the ADP employment report.

With the official non-farm payrolls release postponed due to the partial government shutdown, markets paid closer attention to the ADP figures, which showed job creation slowed sharply last month. Employment growth eased from 37,000 to just 22,000, highlighting a cooling trend in hiring.

The Pound, meanwhile, struggled to gain traction following the release of the UK’s final services PMI for January.

The index was revised down to 54 from an initial estimate of 54.3. While still marking the fastest pace of expansion since August 2025, the downgrade disappointed hopes of a fresh multi-month high and limited Sterling demand.

The survey also flagged ongoing weakness in employment, with service-sector firms continuing to scale back hiring. An increasing focus on automation and efficiency is weighing on job creation, tempering the otherwise upbeat headline reading.

GBP/USD Forecast: Bank of England Signals in Focus

Looking ahead, near-term direction in the Pound to US Dollar exchange rate is likely to hinge on the Bank of England’s first policy decision of 2026.

While no change in interest rates is expected, traders will scrutinise the BoE’s guidance for clues on how policymakers assess the outlook for inflation and growth. Any shift towards a firmer or more cautious tone could help Sterling stabilise as markets reassess expectations for future rate cuts.

For the US Dollar, attention will turn to the University of Michigan’s latest consumer sentiment survey. A further dip in confidence could erode some of the Dollar’s recent support if household morale continues to weaken.

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Created on February 04, 2026

I look at this market as one that could offer opportunities on dips, but it will also be very noisy and rocky to say the least.

USD/JPY

The US dollar has gone back and forth against the Japanese yen during trading here on Tuesday and it does suggest that perhaps we do not really know what to do next as we are hanging around the 50-day EMA which in and of itself will cause a certain amount of chaos.

But I think you also have to realize that this pair is struggling due to the fact that the US dollar itself is a little soft during the trading session. However, I look at this as a buy on the dip opportunity and you do get paid to hang on to the US dollar against the Japanese yen.

Furthermore, this is a great measuring stick as to how the Japanese yen may or may not behave. And I think at this point it is obvious that the Japanese yen is in significant trouble and with that being the case I do prefer to hold the dollar as it pays you at the end of every day.

Monetary Policy and Technical Support

But we are also a little stretched from a longer-term perspective. Maybe a little bit of choppiness here is on tap. I suspect you probably have an easier time with something like the British pound against the Japanese yen but I also recognize that they all tend to move in the same direction over the longer term.

The Bank of Japan finds itself in a situation where it has a lot of problems tightening monetary policy despite the fact that yet again people fell for that line. Now we have a situation where I think the 200-day EMA becomes increasingly important.

As long as we can stay above there, I am looking to buy dips, maybe collect profit on the way up and then buy the next dip. I do think the US dollar does eventually reach the 158-yen level again.

Want to trade our USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

The GBPJPY pair benefited from providing bullish momentum by the main indicators, especially with stochastic reach towards 80 level, forming a strong bullish rally to surpass the barrier at 213.00, to settle above the bullish channel’s support at 213.55 level, to target some extra gains by reaching 214.30.

The stability above the bullish channel’s support will provide strong chance of recording extra gains; to expect to form initial target at 214.90 level and surpassing it might extend the trading in the near period towards 215.55 and 216.35.

The expected trading range for today is between 213.80 and 214.90

Trend forecast: Bullish

BitcoinWorld

EUR/GBP Forecast: Bank of America’s Ominous Bearish Signal as Option Flow Shifts Dramatically

Quantitative analysts at Bank of America have issued a significant bearish signal for the EUR/GBP currency pair, marking a notable shift in institutional positioning and market sentiment for early 2025. This development emerges as option flow data reveals substantial changes in derivatives market activity, potentially foreshadowing directional moves in one of Europe’s most closely watched currency crosses.

EUR/GBP Technical Analysis Reveals Bearish Momentum

Bank of America’s quantitative research team has identified multiple concerning signals within the EUR/GBP technical structure. The currency pair recently broke below its 200-day moving average, a critical long-term support level that had held firm throughout much of 2024. Furthermore, momentum indicators including the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) have entered bearish territory, confirming the weakening technical picture.

Historical data analysis reveals that similar technical breakdowns in the past have preceded sustained directional moves. The current price action suggests potential support levels at 0.8400 and 0.8320, with resistance now established at the previous support-turned-resistance level of 0.8520. Market participants should monitor these levels closely for confirmation of the bearish thesis.

Option Flow Data Signals Institutional Positioning Shift

Derivatives market activity provides compelling evidence supporting the bearish outlook. Recent option flow data shows a notable increase in put option volume for EUR/GBP, particularly in the 1-3 month expiration range. This indicates institutional investors are increasingly hedging against or positioning for euro weakness relative to the British pound.

The put-call ratio, a key sentiment indicator, has shifted decisively in favor of puts, reaching levels not seen since the third quarter of 2023. Additionally, volatility skew analysis reveals higher implied volatility for downside protection, suggesting options traders are pricing in greater risk of euro depreciation than appreciation in the coming months.

Quantitative Models and Historical Precedents

Bank of America’s quantitative models incorporate multiple data streams beyond traditional technical analysis. These models analyze:

• Cross-asset correlations with European and UK equity markets
• Interest rate differentials between the European Central Bank and Bank of England
• Macroeconomic surprise indices for the Eurozone and United Kingdom
• Positioning data from CFTC commitment of traders reports

Historical analysis shows that when these quantitative indicators align in their current configuration, the EUR/GBP has experienced directional moves averaging 3-5% over the subsequent three-month period. The current signal strength ranks in the 85th percentile of historical observations, suggesting above-average conviction in the bearish outlook.

Fundamental Drivers Behind the Currency Pair Movement

Several fundamental factors contribute to the evolving EUR/GBP dynamic. The European Central Bank maintains a relatively dovish stance compared to the Bank of England, creating interest rate differentials that favor sterling. Additionally, economic growth projections for 2025 show the UK economy potentially outperforming the Eurozone, particularly in services and technology sectors.

Political developments also influence the currency pair. Upcoming European Parliament elections and ongoing trade negotiations create uncertainty for the euro, while UK economic policy appears increasingly stable following post-Brexit adjustments. These factors combine to create fundamental headwinds for EUR/GBP in the medium term.

Comparative Analysis with Other Major Currency Pairs

This comparative analysis reveals that EUR/GBP represents one of the clearest directional plays among major currency pairs, according to institutional positioning data. The divergence between euro and pound sentiment has widened significantly in recent weeks, creating potential trading opportunities for informed market participants.

Market Impact and Trading Implications

The bearish signal from Bank of America’s quantitative team carries significant implications for various market participants. Currency traders may consider adjusting their EUR/GBP exposure, while multinational corporations with euro-pound currency risk should review their hedging strategies. Portfolio managers with European equity exposure might evaluate currency-hedged positions to mitigate potential translation losses.

Historical volatility patterns suggest that currency pairs experiencing similar quantitative signals have shown increased volatility in the 30-60 days following the signal. Market participants should therefore prepare for potentially larger daily moves and consider appropriate position sizing and risk management strategies.

Conclusion

Bank of America’s quantitative analysis presents a compelling bearish case for EUR/GBP, supported by shifting option flow data, technical breakdowns, and fundamental divergences. The convergence of these factors suggests potential euro weakness against sterling in the coming months. While currency markets remain inherently unpredictable, the weight of quantitative evidence warrants careful consideration by all EUR/GBP market participants as they navigate the evolving 2025 currency landscape.

FAQs

Q1: What specific option flow changes triggered Bank of America’s bearish signal?
The analysis identified increased put option volume, particularly in 1-3 month expiries, and a significant shift in the put-call ratio favoring downside protection. These changes suggest institutional investors are increasingly positioning for or hedging against euro weakness.

Q2: How reliable are quantitative signals for currency pair forecasting?
Quantitative models have demonstrated varying reliability depending on market conditions. Bank of America’s models show approximately 65-70% accuracy for directional signals over three-month horizons when multiple indicators converge, though past performance doesn’t guarantee future results.

Q3: What time horizon does this EUR/GBP forecast cover?
The analysis primarily focuses on the 1-3 month horizon, though some indicators suggest potential trends extending through the first half of 2025. Currency forecasts typically have decreasing accuracy beyond three months due to changing fundamentals.

Q4: How does this analysis compare to other major bank forecasts for EUR/GBP?
Several other institutions have expressed cautious or neutral views, making Bank of America’s bearish stance relatively distinctive. Divergence among analyst views often indicates genuine market uncertainty and potential trading opportunities.

Q5: What key support levels should traders monitor for EUR/GBP?
Technical analysis identifies 0.8400 and 0.8320 as critical support levels. A sustained break below these levels would confirm the bearish technical structure and potentially trigger further selling pressure.

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