GBP/USD reclaims 1.3500 as Dollar falters on geopolitical shock, weak US data

• GBP/USD jumps above 1.3500 as geopolitical tensions reverse earlier Dollar strength across FX markets.
• US ISM Manufacturing PMI contracts for a tenth straight month, reinforcing concerns about economic momentum.
• Markets price BoE cuts later this year, traders focus shifts to US NFPs and additional data.

GBP/USD surges over 0.29% on Monday as the Greenback erases earlier gains sponsored by risk aversion in the FX space courtesy of geopolitical developments over the weekend. The pair trades at 1.3500 after bouncing off daily lows of 1.3414.

Sterling rallies as risk sentiment improves, the Dollar gives back gains, and US ISM data disappoints

Market mood improvement pushed the Greenback lower as depicted by the US Dollar Index (DXY). The DXY which tracks the performance of the American currency against other six, is down 0.03% at 98.39 after being up in the day by 0.40%.

Economic data in the US, revealed that business activity contracted for the tenth straight month in December, following the release of the ISM Manufacturing PMI, which dipped from 48.2 to 47.9, missing forecasts of 48.3.

Despite reaching its lowest level since October 2024 remaining above 42.3, a level that ISM had said over time is consistent with an expansion of the overall economy. Last December, the latest GDP figures revealed the US economy grew at a 4.3% annualized rate in Q3.

In the meantime, the Minneapolis Fed President Neel Kashkari said that “inflation is still too high,” that he thinks they [the Fed] are closer to neutral, and that the labor market is in a “low-hiring but low-firing” environment.

Geopolitical developments over the weekend, kept the Greenback underpinned during most of the Asian and European session. Last Saturday, US forces ousted Venezuelan President Nicolas Maduro and his wife, as he faces charged of “over 25 years to traffic cocaine into the US. He and others are accused of partnering with groups including the Sinaloa Cartel and Tren de Aragua, which have been designated by the US as foreign terrorist organizations,” via Bloomberg.

Across the pond, money markets expect the Bank of England to cut rates at least once this year, with a possible second towards the year’s end. Capital Edge data shows that futures market was priced in 41.3 basis points of cuts towards the November 5, 2026, meeting.

Ahead, the UK economic docket is absent, not so in the US, which shows the first formal week, packed of data releases. Traders await the release of the ISM Services PMI, Initial Jobless Claims for the week ending January 3 and December’s Nonfarm Payrolls.

GBP/USD Price Forecast: Technical outlook

The GBP/USD technical picture suggests that the pair could extend its gains past December’s peak of 1.3534, opening the door for further upside. If buyers clear 1.3550, expect a test of the 1.3600 mark in the near term. Conversely, if Cable slides below 1.3500, sellers could drive the exchange rate below 1.3400, eyeing a test of the 200-day SMA at 1.3374.