The British pound sterling (GBP) has shown strength against riskier currencies, but it’s been under pressure against safer ones at the start of the week. The currency has been bolstered by hopes that the Bank of England (BoE) will ease monetary policy gradually in 2026. In their last meeting for 2025, the BoE indicated that monetary policy would maintain a “moderate downward trajectory” after lowering interest rates by 25 basis points to 3.75% in December, which was a close vote of 5-4.
Analysts suggest that the BoE is pursuing a gradual easing strategy as inflation in the UK remains significantly above its target of 2%, although it has decreased in recent months. The UK’s consumer price index (CPI) inflation dropped to 3.2% in November, down from a peak of 3.8% in September.
GBP falls against the US dollar amid a shaky market outlook
- Sterling declined by 0.2% to about 1.3420 against the US dollar as investors grew risk-averse following a US-led attack on Venezuela and the arrest of President Nicolas Maduro on drug trafficking charges.
- Concurrently, the U.S. Dollar Index (DXY), which measures the dollar’s value against six major currencies, reached its highest point in over three weeks at 98.80.
- Recently, the U.S. announced plans to intervene in Venezuela and involve American oil companies in restructuring its oil sector. President Trump has also made threats towards Colombia and Iran, labeling Colombia as “sick” and stating Iran would face severe consequences if it continues to harm protesters, as reported by Reuters.
- The GBP/USD exchange rate is likely to experience notable fluctuations this week, especially with the upcoming release of various U.S. economic data, including December’s non-farm payrolls (NFP), set for Friday.
- Market participants will be closely monitoring the official U.S. jobs report for insights into the job market’s condition. In 2025, the Federal Reserve (Fed) made three interest rate cuts, reducing rates to a range of 3.50% to 3.75% to address worsening conditions in the labor market.
- During Monday’s trading session, attention will be on the December ISM Manufacturing Purchasing Managers Index (PMI) data, which is expected to be released at 15:00 GMT. A slight increase to 48.3 from 48.2 in November is anticipated, hinting at a contraction in business activity but perhaps at a slower rate.
Technical Overview: GBP/USD struggles to stay above key Fibonacci level at 1.3500
Currently, GBP/USD is trading at 1.3427. The short-term outlook appears slightly positive, as prices hover just above the rising 20-day exponential moving average (EMA) of 1.3422, which consistently supports this soft downward trend.
The Relative Strength Index (RSI) sits at 54, indicating a neutral position but showing that bullish momentum may be waning.
In terms of Fibonacci levels, resistance is found at 1.3491, which corresponds to the 61.8% retracement from the early July high of 1.3791 to the November low of 1.3008. Immediate support is located at the 50% retracement level of 1.3399. A closing price above 1.3491 could widen the potential for gains, while a drop below 1.3399 might lead to further downturns.
