GBPUSD‘s freefall has halted between 1.26 and 1.27 so far, but the currency is still feeling downward pressure. The decline has been driven by poor economic data from the UK, strong US data, and the potential effects of the Trump administration, alongside a rising dollar index. However, the sharp selloff from 1.34 to 1.26 is in dire need of a correction. Will GBPUSD rise again? 

(Citi Economic Surprise Index Spread UK vs US – GBPUSD) 

Economic surprise indices have performed very well over the last couple of years, accurately predicting the direction of the FX market. The spread between UK and US surprise indices acted as an early warning signal. However, the final fall of GBPUSD came slightly delayed. The spread began to decline in July, but in late September, GBPUSD experienced a sharp surge from 1.30 to 1.34 — a significant trap that captured overenthusiastic bulls and squeezed the shorts. Then, the selloff came hard and fast. In less than two months, GBPUSD dropped nearly 6%. So far, there are no signs of recovery. However, with recent high core inflation data and higher-than-expected public borrowing in October, expectations for the pace of rate cuts might be trimmed. 

(GBPUSD Daily Chart) 

Despite the fast selloff, GBPUSD is still in an uptrend since March 2023. So this might be a buying opportunity for the medium term traders who are following the trend. But first, a consolidation period is likely to begin above or at near trend, between 1.25 and 1.26, most likely below the current zone. This trend will be the key for determining the direction for the medium term. As long as it holds, GBP bulls will have enough reason to support the currency but a break might extend the panic and keep fueling the downward pressure, maybe even to 1.20.