Pound Sterling gains on upbeat market mood
- The Pound Sterling outperforms its major currency peers as the market sentiment improves.
- Weak US ISM Manufacturing PMI data has weighed on the US Dollar.
- Investors await the US NFP data for fresh cues on the Fed’s monetary policy outlook.
The Pound Sterling (GBP) trades higher against its major currency peers, except antipodeans, on Tuesday. The British currency gains as the market sentiment turns favorable for risk-perceived assets, with market jitters due to the capture of Venezuelan President Nicolas Maduro by the United States (US) military over drug-trafficking charges easing.
S&P 500 futures extend Monday’s gains during the European trading session, demonstrating the higher risk appetite of investors.
On Monday, investors turned risk-averse after the US military action in Venezuela and the announcement from US President Donald Trump that Washington will restructure Venezuela’s Oil industry.
On the domestic front, the United Kingdom (UK) economic calendar is light this week, therefore, market expectations for the Bank of England’s (BoE) monetary policy outlook are expected to drive the Pound Sterling.
The BoE is expected to follow a gradual monetary easing path in 2026 as the UK inflation is still above the 2% target, despite price pressures slowing down in the past two months. The UK headline Consumer Price Index (CPI) inflation came down to 3.2% year-on-year (YoY) in November from a peak of 3.8% seen in September.
Daily digest market movers: Pound Sterling posts fresh nearly four-month high against US Dollar
- The Pound Sterling jumps to near 1.3555 against the US Dollar (USD) during the European trading session on Tuesday, the highest level seen in nearly four months. The GBP/USD pair strengthens as the US Dollar corrects further, with optimism returning to global markets.
- As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.16% lower to near 98.20. On Monday, the DXY reversed after posting a fresh over-three-week-high at 98.86.
- Apart from improving market sentiment, comments from Minneapolis Federal Reserve (Fed) President Neel Kashkari signaling concerns on the labour market outlook and weak US ISM Manufacturing PMI data for December have also weighed on the US Dollar.
- On Monday, Fed Kashkari warned that the “job market is clearly cooling”. Kashkari also signaled that there is more room for interest rate cuts, citing that “My [Kashkari] guess is we're [Fed] close to neutral now”.
- The data released on Monday showed that the ISM Manufacturing PMI dropped to 47.9 in December from 48.2 in the previous month. This is the 10th straight month with the manufacturing business activity contracting.
- Going forward, investors will focus on the US Nonfarm Payrolls (NFP) data due for release on Friday. The US official employment data will significantly influence market expectations for the Fed's monetary policy outlook as the central bank reduced interest rates by 75 basis points (bps) to the 3.50%-3.75% range in 2025 due to downside labor market risks.
Technical Analysis: GBP/USD breaks above 61.8% Fibo retracement at 1.3500
GBP/USD trades at 1.3550 at the time of writing. The 20-day Exponential Moving Average (EMA) is rising beneath price, keeping the short-term bias pointed higher. A sustained close above this gauge favors follow-through on the advance.
The Relative Strength Index (RSI) at 68.79 sits near overbought, confirming firm bullish momentum. Measured from the 1.3799 high to the 1.3008 low, the 61.8% Fibonacci retracement at 1.3497 has been reclaimed.
The trend tone remains positive while the pair holds over the ascending 20-EMA, with the indicator last at 1.3444 acting as dynamic support on dips. Meanwhile, the RSI stays elevated and rising, leaving scope for an extension before momentum cools. On the topside, measured from the 1.3799 high to the 1.3008 low, the 78.6% retracement at 1.3630 stands as the next resistance. A break above this barrier would open the path for further recovery.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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