During the European trading session on Tuesday, the Pound Sterling (GBP) experienced a decline against the US Dollar (USD), dropping to around 1.3520 after initially gaining earlier in the day. The reversal came as the US Dollar rebounded, recovering its earlier losses. The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, showed a modest rise to approximately 98.45.
The outlook for the US Dollar remains somewhat uncertain, primarily due to weak ISM Manufacturing Purchasing Managers’ Index (PMI) data for December and recent comments from Neel Kashkari, President of the Minneapolis Federal Reserve, regarding a cooling labor market. The ISM Manufacturing PMI fell to 47.9 in December from 48.2 in November, marking the tenth consecutive month of contracting manufacturing activity. Kashkari cautioned that the job market is clearly weakening, hinting that there may be more room for interest rate cuts, stating, “My guess is we’re close to neutral now.”
In terms of market performance today, the British Pound was notably strong against the Swiss Franc among other currencies. The following percentage changes were observed against major currencies:
– USD: +0.14%
– EUR: -0.14%
– GBP: -0.13%
– JPY: -0.06%
– CAD: -0.05%
– AUD: +0.02%
– NZD: +0.02%
– CHF: -0.20%
Market sentiment shifted earlier as concerns about geopolitical tensions lessened following reports of the US military capturing Venezuelan President Nicolas Maduro on drug-related charges. President Donald Trump also announced plans to restructure Venezuela’s oil industry, contributing to a sense of risk aversion among investors.
Looking at the economic landscape in the UK, this week’s calendar is relatively light, with market focus shifting to expectations regarding the Bank of England’s (BoE) monetary policy. As inflation in the UK remains above the 2% target, the BoE is anticipated to adopt a gradual easing approach in 2026, despite recent signs hinting at a slowdown in price pressures. Notably, headline Consumer Price Index (CPI) inflation decreased to 3.2% year-on-year in November, down from a high of 3.8% in September.
In the near term, investors are turning their attention to the upcoming US Nonfarm Payrolls (NFP) data, set to be released on Friday. This employment report is expected to significantly influence market expectations for the Federal Reserve’s monetary policy outlook after a reduction in interest rates by 75 basis points to a range of 3.50%-3.75% due to ongoing labor market challenges.
From a technical analysis perspective, the GBP/USD pair is trading lower at approximately 1.3520, yet the overall outlook appears bullish. The 20-day Exponential Moving Average (EMA) indicates a rising trend, suggesting potential further gains. The Relative Strength Index (RSI) stands at 64.35, indicating robust bullish momentum. However, the pair faces challenges maintaining above the critical 61.8% Fibonacci retracement level of 1.3497. If it manages to sustain a position above this support, it could advance toward the 78.6% retracement level at 1.3630.
The market continues to navigate complex dynamics influenced by both domestic economic signals and broader geopolitical events, with investors keenly assessing the potential implications for currency performance.
