GBP/USD Rebounds from Near Three-Week Low Amid Fed Concerns Pressuring USD
By Haresh Menghani, FXStreet — January 12, 2026
The GBP/USD currency pair has shown tentative signs of recovery early this week as it rebounds from a nearly three-week low recorded during Monday’s Asian session. Spot prices have broken a four-day losing streak, gaining around 0.20% to trade near 1.3435, supported by broad-based selling pressure on the US Dollar (USD).
Fed Independence Concerns Weigh on USD
Investor sentiment towards the USD has been dampened by renewed uncertainties surrounding the Federal Reserve’s autonomy. The US central bank’s credibility took a hit following statements from Fed Chair Jerome Powell, who revealed that the Department of Justice (DOJ) is threatening him with a criminal indictment. Powell emphasized that the alleged threat stems from the Fed acting according to its "best assessment of what will serve the public," rather than aligning with presidential preferences.
This unexpected development has undermined confidence in the USD, pulling the dollar index (DXY) down from last Friday’s one-month high set on December 9. The decline occurred despite ongoing global risk aversion and subdued expectations for aggressive policy easing from the Fed.
US Labor Market Data Supports Stagnant Monetary Policy Outlook
The USD’s weakness was further underscored by the latest US labor market figures. December’s Nonfarm Payrolls (NFP) report showed a modest gain of only 50,000 new jobs, significantly below market expectations. Meanwhile, the unemployment rate slipped to 4.4%. While the data remains mixed, it supports the narrative for potentially unchanged monetary policy in the first quarter of 2026, providing little fresh impetus for USD bulls.
GBP/USD Gains Limited by Bank of England Rate Cut Bets
Despite this environment favoring the British Pound (GBP), the GBP/USD pair’s upside potential is being capped by increasing market bets on two interest rate cuts from the Bank of England (BoE) in 2026. This anticipation of looser policy poses a restraint on aggressive GBP appreciation.
Market participants are also cautiously awaiting key economic releases scheduled later this week, which could add volatility and direction to the pair. Tuesday and Wednesday will see the release of US inflation data, including the Consumer Price Index (CPI) and Producer Price Index (PPI). On Thursday, the UK monthly GDP report is expected to provide additional momentum for GBP/USD during the trading week’s latter part.
Rising Geopolitical Tensions Fail to Support Safe-Haven USD
Despite escalating geopolitical tensions globally, the USD has not benefited from its traditional safe-haven status. Instead, the broader market focus remains fixated on US monetary policy and Federal Reserve-related uncertainties, leaving the greenback under pressure.
Currency Performance Snapshot
Today’s movements show the USD losing ground moderately against most major currencies except the Japanese Yen, where it remains relatively stronger. For reference:
- USD/GBP up approximately 0.20%
- USD/EUR down 0.24%
- USD/JPY down 0.16%
This wide USD weakness underpins the GBP/USD pair’s recent recovery.
Outlook
Market watchers are poised for potentially volatile trading this week as fresh US inflation data and UK GDP figures provide fresh catalysts. The fate of the USD amidst political pressure on the Fed’s independence, and the BoE’s policy trajectory against a backdrop of cautious risk sentiment, will likely determine the currency pair’s near-term direction.
About the author:
Haresh Menghani is a financial markets analyst with over a decade of experience specializing in forex and global economic trends.
This article is for informational purposes only and should not be considered financial advice. Investors are recommended to conduct their own research or consult with a professional before making trading decisions.