• The Pound Sterling returns to the red against the US Dollar, hitting 14-month lows.
• GBP/USD licks wounds heading into the UK/US inflation showdown.
• Pound Sterling remains vulnerable below the key 21-day SMA at 1.2530.

The Pound Sterling (GBP) resumed its bearish momentum against the US Dollar (USD), pushing GBP/USD to the lowest level in 14 months below 1.2200.

Pound Sterling kept falling

Nothing could stop Pound Sterling sellers as the GBP/USD pair faced a double whammy in the first full week of 2025. The week began on an upbeat note as risk appetite returned on China’s stimulus optimism and strong Caixin Services PMI data. The People’s Bank of China (PBOC) pledged over the weekend that it will step up financial support for technology innovation and consumption stimulation as part of a continued effort to boost economic growth, per Bloomberg. 

Positive risk sentiment weighed on the safe-haven USD, while helping the higher-yielding British Pound extend its previous week’s late rebound. However, the tide turned against the pair as inflation fears resurfaced on increased concerns over the potential impact of US President-elect Donald Trump’s immigration and trade policies, reviving the safe-haven demand for the US Dollar.  

Expectations of fewer interest rate cuts by the US Federal Reserve (Fed) this year, fanned by encouraging US Job Openings and Labor Turnover Survey and ISM Manufacturing and Services PMI data, drove US Treasury bond yields higher across the curve, adding to the upside in the Greenback.

The decline in the GBP/USD pair gathered traction midweek after the Pound Sterling came under intense pressure due to a sharp sell-off in the British government bond market, fuelled by investors’ anxiety about UK assets and the economic outlook.

The bond market rout extended on Thursday, with the yield on benchmark 10-year UK Gilts rising by as much as 0.12 percentage points to 4.921%, the highest since 2008. This smashed the pair to its lowest level since November 2023 at 1.2239 before it recovered some ground to near 1.2300.

GBP/USD licked its wound near multi-month troughs heading into Friday’s US Nonfarm Payrolls (NFP) data release. Investors remained wary of the sell-off in the global bond market and growing Chinese economic worries.

In the American session on Friday, the USD gathered strength against its rivals after the December jobs report showed that NFP rose by 256,000, beating the market expectation of 160,000 by a wide margin. Additionally, the Unemployment Rate edged lower to 4.1%, while the Labor Force Participation Rate remained unchanged at 62.5%. Pressured by the USD rally, GBP/USD declined sharply with the immediate reaction and declined below 1.2200.

Inflation data remain the central focus

After a week dominated by US economic events, attention also turns to the UK macro data amid a quiet start to a busy week.

The early part of the week lacks any top-tier UK data releases but the Producer Price Index (PPI) data from the US will grab some eyeballs on Tuesday.

The high-impact Consumer Price Index (CPI) inflation data from both sides of the Atlantic will stand out on Wednesday.

The UK monthly Gross Domestic Product (GDP) report and Industrial Production will be published on Thursday ahead of the US Retail Sales and Jobless Claims data.

Friday will feature the Chinese fourth-quarter GDP and December activity data, which could significantly impact risk sentiment and higher-yielding assets such as the British Pound.

The UK Retail Sales and the mid-tier US housing data will be published on the same day.

Apart from the data publication and speeches from Fed policymakers, Trump’s policy speculations and geopolitical developments will also emerge as potential market drivers.

GBP/USD: Technical Outlook

GBP/USD confirmed a downside break from the six-week-long falling wedge formation after closing Thursday below the lower boundary of the wedge at 1.2330.

The 14-day Relative Strength Index (RSI) languishes in negative territory near 30, indicating more scope for the downside.

Further, the 50-day Simple Moving Average (SMA) and the 200-day SMA Death Cross, confirmed last month, remains in play and acts as a headwind to the pair.

If sellers flex their muscles and keep the pair below the previous 14-month low of 1.2239, the next downside target is November 10 2023 low of 1.2187.

Further south, the 1.2100 demand area could offer some respite to buyers. If that support caves in, the 1.2050 psychological level will be tested.

Conversely, any recovery will need acceptance above 1.2511 to sustain. That level is the confluence of the 21-day SMA and the upper boundary of the wedge.

The pair will then challenge the 50-day SMA at 1.2639 toward the 200-day SMA at 1.2803.

Created on January 10, 2025

• US dollar finds buyers on dips against the Japanese yen.
• The US dollar plunged early during the trading session on Thursday but has turned around to show signs of life as it looks like the 158 yen level is going to continue to attract some buying pressure.
• In general, this is a market that has been very bullish for a while, and should continue to be, mainly due to the interest rate differential between the two economies with the United States seeing interest rates rise and Japan still being almost nothing.

So, it makes sense as you will see traders hang on and get paid at the end of every day just to simply hold on to this USD/JPY pair. Furthermore, with the jobs number coming out on Friday, that could add more fuel to the fire, mainly due to the idea that perhaps the job market in America is still rather strong and if that’s the case then inflation is going nowhere and then by extension the federal reserve isn’t going to be cutting anytime soon. With this being said I think you’ve got a situation where people will continue to see a lot of noisy behavior but even if we were to pull back on Friday it would take something pretty drastic for me to believe that the uptrend is over. I think it would just be a simple hiccup along the way, and you could pick up cheap US dollars in that environment.

The 158 Yen Level

The 158 yen level has been important, but I think there’s also the 156 yen level as a floor and then again, the 155 yen level. Both of these could be areas where buyers come in. If the US dollar breaks out and clears the 159 yen level than 160 yen followed by 162 yen will be targeted. There really isn’t much the Bank of Japan can do other than try to bluff the market, which only works so long. So, I remain bullish of this market.

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

• GBP/USD fluctuates near 1.2300 in the European morning on Friday.
• The 10-year UK gilt yield stays above 4.8%.
• December labor market data from the US will be watched closely by market participants.

After dipping to its weakest level since November 2023 below 1.2250 in the European session on Thursday, GBP/USD erased a portion of its losses in the second half of the day. The pair trades in a narrow channel at around 1.2300 on Friday as investors keep a close eye on the action in the UK gilt markets while waiting for December labor market data from the US.

The selloff in the UK gilts continued early Thursday, causing Pound Sterling to weaken against its major rivals. In the European morning on Friday, the yield on the 10-year UK gilt stays in positive territory at around 4.85%. Another leg higher in this yield could trigger a new bout of selloff in GBP. On the other hand, a downward correction could help GBP/USD hold its ground.

The US Bureau of Labor Statistics will publish the December employment data in the early American session on Friday. The market expectation is for Nonfarm Payrolls to rise by 160,000 following the 227,000 increase reported in November. In the same period, the Unemployment Rate is seen holding steady at 4.2%.

A positive surprise in NFP, with a reading above 200,000, could help the USD gather strength and force GBP/USD to stay on the back foot heading into the weekend. On the flip side, the USD could come under pressure if the NFP arrives below 150,000. In this scenario, GBP/USD could stage a rebound later in the American session. Investors, however, could refrain from betting on a steady recovery until the UK gilt market settles down.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays well below 40 and GBP/USD remains in the lower half of the one-month-old descending regression channel, highlighting the bearish bias.

On the downside, first support is located at 1.2250 (lower limit of the descending channel) before 1.2200 (static level, round level) and 1.2140 (static level from November 2023).  Looking north, first resistance could be spotted at 1.2360 (mid-point of the descending channel) ahead of 1.2400 (round level, static level) and 1.2440 (50-period Simple Moving Average).

• EUR/USD trades in a tight range at around 1.0300 in the European morning.
• The cautious market stance doesn’t allow the pair to stage a rebound.
• December employment data from the US could trigger the next big action in the pair.

EUR/USD holds steady near 1.0300 in the early European session on Friday after closing in negative territory for the third consecutive day on Thursday. The pair remains technically bearish in the near term as focus shifts to labor market data from the US.

With US stock markets remaining closed and bond markets closing early in observance of a national day of mourning to honor the death of former President Jimmy Carter, the market action turned subdued on Thursday. Early Friday, US stock index futures lose between 0.1% and 0.4%, reflecting a cautious market stance, which makes it difficult for EUR/USD to stage a rebound.

Later in the day, the US Bureau of Labor Statistics will publish the December employment report. Markets expect Nonfarm Payrolls to rise by 160,000 following November’s 227,000 increase. The Unemployment Rate is forecast to remain unchanged at 4.2%.

An NFP reading above 200,000 could boost the USD heading into the weekend and force EUR/USD to stretch lower. On the other hand, a disappointing print below 150,000 could have the opposite impact on the pair’s action. In case the headline NFP arrives near the market consensus, the change in the Unemployment Rate could drive the USD’s valuation, with an unexpected rise hurting the currency and vice versa.

EUR/USD Technical Analysis

The Relative Strength Index moves sideways below 50 and EUR/USD remains below the 20 and the 50-period Simple Moving Averages (SMA) on the 4-hour chart, highlighting buyers’ hesitancy.

In case EUR/USD confirms 1.0300 (static level, round level) as resistance, 1.0240 (static level, end point of the latest downtrend) could be seen as next support before 1.0200 (static level, round level). If the pair manages to stabilize above 1.0300, 1.0325 (Fibonacci 23.6% retracement of the latest downtrend, 20-period SMA) and 1.0375 (100-period SMA, Fibonacci 38.2% retracement) could be seen as next resistance levels.

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