Pound Suffers From Divergence. Forecast as of 22.01.2026 | LiteFinance
While Donald Trump was fuelling tensions over Greenland, the GBP/USD pair traded calmly. However, the US president’s retreat deprived the pound sterling of its support. It looks vulnerable due to divergence in monetary policy. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Geopolitical factors supported GBP/USD quotes.
- Speculators favored the pound.
- The Bank of England plans to lower interest rates.
- Short trades on the GBP/USD pair can be opened on a breakout of 1.34 and 1.339.
Weekly Fundamental Forecast for Pound Sterling
Hope for the best, prepare for the worst. The cooling of the British economy at the end of 2025 dampened the Bank of England’s spirits and forced it to lower the repo rate to 3.75% at its December meeting, the lowest level since 2022. The futures market expects another act of monetary expansion from the UK regulator, with some probability of a second one. If it were not for the geopolitical turmoil, the GBP/USD pair would be doomed.
Unlike the events of spring-summer 2025, when London was the first to agree with Washington on 10% tariffs, in January, the UK was blacklisted along with other European countries because of Greenland. However, the negotiations in Davos and Donald Trump’s subsequent retreat shifted investor focus from geopolitics to macroeconomics.
Speculative Positions on British Pound
Source: Bloomberg.
The pound looks vulnerable. It is difficult to understand why speculators are increasing their net long positions on this currency. Perhaps they are betting on an influx of capital into the UK markets. Meanwhile, the FTSE 100 index is hitting record highs amid falling bond yields and optimistic forecasts from the IMF.
The International Monetary Fund believes that despite all the troubles, the British economy will be the third fastest growing among the G7 countries, trailing only the United States and Canada. It has benefited from AI investments, though to a much lesser extent than the US.
IMF Forecasts for GDP Growth in G7 Countries
Source: Bloomberg.
It is possible that GBP/USD bulls were encouraged by the unexpected acceleration of inflation in the UK to 3.4% in December. This reduced the chances of a second round of monetary expansion by the Bank of England from 70% to 64%.
However, the BoE’s latest forecasts show a figure of 3.5% at the end of 2025. The cooling of the labor market, including unemployment rising to a five-year high of 5.1%, allows Andrew Bailey to expect consumer prices to slow down to the target as early as the second quarter. The IMF believes that this will happen by the end of the year.
Speculators’ bullish bets on the pound are the result of fears about the US dollar’s performance. At the end of 2025, the outlook for the greenback was gloomy due to expectations of an acceleration in the monetary expansion cycle after Donald Trump reshuffled the FOMC. In fact, the Supreme Court has protected Lisa Cook, suggesting that an increase in the number of doves on the Committee is far from certain.
At the same time, the strength of the US economy and the stabilization of the labor market increase the chances of a prolonged pause in the Fed’s monetary expansion cycle. This divergence bodes well for the US dollar.
Weekly Trading Plan for GBP/USD
The reduction in geopolitical risks and investor confidence in the Federal Reserve’s independence provides a solid opportunity to take advantage of the divergence in monetary policy and sell the GBP/USD pair. If the price breaks through the key support levels of 1.34 and 1.339, short positions can be considered.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of GBPUSD in real time mode
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