Pound Sterling extends decline against US Dollar, while focus shifts to US NFP
- The Pound Sterling remains under pressure against the US Dollar on Thursday.
- Investors await the US NFP report on Friday for fresh cues on the Fed’s monetary policy outlook.
- The next major trigger for the Pound Sterling will be the UK employment data for the three months ending in November.
The Pound Sterling (GBP) extends the decline for the third consecutive day against the US Dollar (USD), trading near 1.3450 during the European trading session on Thursday. The GBP/USD pair is under pressure as the US Dollar trades firmly, following the release of an unexpectedly strong United States (US) ISM Services Purchasing Managers’ Index (PMI) data for December.
At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to the four-week high of 98.86 posted on Monday.
The data released on Wednesday showed that the ISM Services PMI rose to 54.4 in December from 52.6 in November, marking the highest level since October 2024. Economists expected the data to come in lower at 52.3. Meanwhile, the subcomponents of the Services PMI, such as the Employment Index and New Orders Index, also came in stronger than the previous readings.
Market experts believe that upbeat US Services PMI could be a drag on Federal Reserve (Fed) dovish expectations. Analysts at ING said in a note that “soaring US services clouds the Fed rate cut story".
Daily Digest Market Movers: Pound Sterling remains driven by market sentiment
- The Pound Sterling trades lower against safe-haven currencies, but higher vs. its risky currency peers on Thursday. The British currency has been majorly driven by risk sentiment amid a light United Kingdom (UK) economic calendar week.
- Going forward, the major trigger for the Pound Sterling will be the UK employment data for the three months ending in November, which is scheduled for early next week. Investors will pay close attention to the UK labor market data as it will influence market expectations for the Bank of England’s (BoE) monetary policy outlook.
- In December’s policy meeting, the BoE guided that the monetary policy will remain on a “gradual downward path”.
- This week, the GBP/USD pair will be influenced by the US Nonfarm Payrolls (NFP) data for December, which will be published on Friday. Investors will pay close attention to the US official employment data to get fresh cues on the Fed’s monetary policy outlook. In 2025, the Fed delivered three interest rate cuts of 25 basis points (bps) to support weakening job market conditions.
- Ahead of the US NFP, the ADP Employment Change report showed on Wednesday that private employment rebounded by adding 41K workers in December after firing 29K payrolls in November. Meanwhile, the US JOLTS Job Openings data showed that fresh jobs posted in November were 7.146 million, lower than estimates of 7.6 million and the prior reading of 7.449 million.
Technical Analysis: GBP/USD corrects to near 20-day EMA
GBP/USD trades lower around 1.3455 as of writing. The price holds marginally above the rising 20-day Exponential Moving Average (EMA) at 1.3443, keeping the near-term bias supported. The 20-day EMA has edged higher in recent sessions, maintaining an upward tilt.
The 14-day Relative Strength Index (RSI) at 54.51 (neutral) after easing from the high-60s shows bullish momentum cooled but remains above the midline.
Measured from the 1.3791 high to the 1.3008 low, the 61.8% Fibonacci retracement at 1.3491 caps the immediate upside. A breakout above this level would extend the rebound toward the 78.6% Fibonacci retracement at 1.3623. Conversely, a close below the 20-EMA at 1.3443 would stall the advance and could open the door for further retracement towards the December 17 low and the 38.2% Fibonacci retracement near 1.3310.
(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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