GBP/USD was down 0.1% near 1.3545 in European trading on Thursday, after failing to extend gains above 1.3600 near the 61.8% Fibonacci retracement. The pair faced mild pressure as the US Dollar firmed after earlier losses, while risk appetite stayed positive.
S&P 500 futures were up 0.2% around 7,070 at the time of reporting. The US Dollar Index rose 0.15% to about 98.20.
The pair reached a seven-week high of 1.3593 after UK GDP for February rose 0.5% m/m, compared with forecasts of 0.1% and a flat January reading. The move was limited, with attention also on the Iran war and comments that the conflict with Tehran could end soon.
GBP/USD had gained about 3.3% over the past two weeks, with support seen near 1.3550. Resistance was cited at 1.3665–1.3700, with a longer-term reference level at January’s 4½-year high of 1.3868.
The pair eased after an uninterrupted seven-day advance and a two-month high of 1.3589 on Tuesday, after moving above the daily Ichimoku cloud top at 1.3561. Pullback levels mentioned were 1.3500, the 50% retracement of the 1.3869–1.3159 drop, and the cloud base near 1.3450.
We are seeing the GBP/USD pair trade near 1.2850, a stark contrast to the battle around the 1.3600 level back in early 2025. Looking at that period reminds us how a strong rally can stall at key technical points, even when domestic data looks good. Today, the dynamic is different, but the principle of watching for exhaustion remains the same.
With recent UK inflation for March coming in slightly hotter than expected at 2.8%, the Bank of England may feel pressure to maintain its firm stance. This contrasts with recent US jobs data showing a slight cooling, with Non-Farm Payrolls adding 195,000 jobs, just below the 220,000 forecast. This divergence suggests potential upside for Cable, making strategies like buying call options on GBP/USD attractive for a potential move toward the 1.3000 psychological level.
Just as we saw in early 2025 when strong UK GDP data failed to sustain a break higher, we must be cautious. Back then, a resilient dollar capped the rally, and similar dollar strength could re-emerge. Traders should therefore consider staged entries or bull call spreads to limit upfront premium costs while targeting gains.
Market volatility is currently subdued, with the VIX index hovering near 14, making option premiums relatively inexpensive compared to historical averages. This environment is favorable for purchasing options, as the cost of being wrong is lower. This is a significant change from the more volatile periods we navigated through in 2025.
Technically, the pair faces initial resistance near the 1.2980 area, which represents the 50% Fibonacci retracement of the decline from the February highs. A failure to break this level could signal that the rally is losing steam, similar to the pause seen at the 1.3600 hurdle last year. Protective put options bought below the 1.2750 support level could offer a valuable hedge against a sudden reversal.
We also have to keep an eye on the US Dollar Index (DXY), which is currently trading around 104.50, significantly higher than the 98.20 level seen during the 2025 rally attempt. Any unexpected hawkish commentary from the Federal Reserve could quickly strengthen the dollar and invalidate the bullish case for GBP/USD. This reminds us that even with positive UK data, the dollar’s performance is a critical piece of the puzzle.
