Pound Sterling climbs as criminal allegations against Fed Powell put pressure on the US Dollar

Pound Sterling Rebounds Sharply Against US Dollar Amid Fed Controversy

On Monday during European trading hours, the British Pound (GBP) made a significant recovery, climbing to approximately 1.3450 against the US Dollar (USD) after starting the session near 1.3390. This rebound in the GBP/USD pair coincided with a notable decline in the US Dollar, following news that Federal Reserve (Fed) Chair Jerome Powell is under criminal investigation for alleged mismanagement of funds related to the renovation of the Fed’s Washington headquarters, as reported by the New York Times.

At the time of reporting, the US Dollar Index (DXY)—which measures the dollar’s performance against a basket of six major currencies—had dropped by 0.3% to around 98.80, pulling back after reaching a monthly peak near 99.25.

Over the weekend, the US Department of Justice issued a subpoena to the Fed targeting Jerome Powell. The investigation focuses on his statements during his June 2025 Senate testimony and a review of his financial records.

Powell responded by asserting that the “new threat” is unrelated to his testimony or the renovation project, but rather serves as a pretext. He further argued that the criminal allegations stem from the Fed’s decision to set interest rates based on its independent assessment of the public good, rather than aligning with the president’s wishes.

Analysts suggest that these legal challenges have intensified the ongoing conflict between Powell and President Donald Trump, who has repeatedly criticized Powell for not reducing interest rates since returning to office. Such developments could undermine the Fed’s independence and weigh negatively on the US Dollar.

Market Insights: UK Job Market Remains Weak as Wages Climb

• This week, attention turns to the UK’s employment figures for the three months ending in November, set for release on Tuesday. Investors are keenly awaiting these numbers for clues about the Bank of England’s (BoE) future policy direction.
• Labor market challenges persist in the UK for 2025, with businesses holding back on hiring to offset increased employer contributions to social security.
• According to a recent survey by the Recruitment and Employment Confederation (REC) and KPMG, job demand in December remained subdued, while wage growth continued to accelerate.
• In the US, Friday’s Nonfarm Payrolls (NFP) report for December revealed a sharp drop in the unemployment rate to 4.4% from 4.6% in November. However, hiring slowed, with only 50,000 new jobs added—below both the forecast of 60,000 and the previous month’s 56,000.
• Looking ahead, the next key event for the US Dollar will be Tuesday’s release of Consumer Price Index (CPI) data, which investors will scrutinize for signals on the future path of interest rates.
• Throughout 2025, the Fed implemented three 25 basis point rate cuts in an effort to address labor market concerns, despite inflation remaining well above the 2% target for an extended period.
• Atlanta Fed President Raphael Bostic stated in a recent radio interview that inflation remains “too high” and emphasized the need for the Fed to bring it “under control.”

GBP/USD Technical Outlook: Bulls Eye Key Resistance Levels

Currently, GBP/USD is trading higher near 1.3443. The 20-day Exponential Moving Average (EMA) has risen to 1.3438, with the pair holding just above this level, indicating a bullish bias.

The 14-day Relative Strength Index (RSI) has climbed to 53, signaling steady upward momentum.

Resistance is found at the 61.8% Fibonacci retracement level of 1.3496, measured from the 1.3794 high to the 1.3014 low. A clear move above this threshold would suggest the downtrend is weakening and could pave the way for a rally toward the September 17 high at 1.3726.

If the pair fails to surpass 1.3496, it may remain range-bound, with a potential pullback toward the 50% retracement at 1.3404, which could stall further gains and keep the recovery limited.

(This technical analysis was generated with the assistance of an AI tool.)