GBP/USD strengthens above 1.3650 on robust UK data

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The GBP/USD pair trades in positive territory near 1.3660, the highest since September 17, 2025, during the early European session on Monday. The Pound Sterling (GBP) edges higher against the Greenback on the stronger-than-expected UK Retail Sales and Purchasing Managers Index (PMI) data.

GBP/USD gathers strength to the highest since mid-September, around 1.3660 in Monday’s early European session.
The upbeat UK Retail Sales and business activity figures support the Pound Sterling.
Markets widely expect the Fed to hold rates steady at the upcoming meeting due to a stabilizing labor market.

Data released by the Office for National Statistics (ONS) on Friday showed that the UK Retail Sales rose 0.4% month-over-month (MoM) in December after falling 0.1% in November. This figure came in better than the forecast of a 0.1% decline in the reported month.

Meanwhile, the core Retail Sales, stripping the auto motor fuel sales, increased 0.3% MoM in December, compared with the previous decline of 0.4% (revised from -0.2%), above the market consensus of a 0.2% drop. The UK S&P Global UK Composite PMI climbed to 53.9 in December, also above expectations, to a 21-month high.

These reports have led some analysts to predict a potential delay in further Bank of England (BoE) rate cuts, which would lift the GBP against the US Dollar (USD). The UK central bank is expected to hold rates steady when it next meets in February. Markets fully price in a quarter-point rate cut by June, according to Reuters.

The US Federal Reserve (Fed) will announce its latest interest rate decision on Wednesday, with expectations that rates will remain unchanged at the 3.50% to 3.75% target range. Traders will closely monitor Fed Chair Jerome Powell’s remarks following the policy meeting, as his insights could provide important clues for the months ahead. Any hawkish comments from Fed officials could provide some support to the USD and act as a headwind for the major pair in the near term.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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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