The British Pound (GBP) continued to outperform the US Dollar (USD) on Friday, with GBP/USD climbing to the 1.3600 level, while the dollar remains under broad selling pressure. At the time of writing, the pair is up almost 0.73%, its highest level since September 18, 2025.
Sterling is also drawing support from stronger-than-expected UK macroeconomic data, which has tempered expectations for short-term interest rate cuts at the Bank of England (BoE).
The preliminary Composite Purchasing Managers Index (PMI) rose to 53.9 from 51.4 in January, with the Services PMI increasing to 54.3 from 51.4 and the Manufacturing PMI improving to 51.6 from 50.6. On the consumer side, retail sales increased by 0.4% m/m in December, rebounding from a decline of 0.1% in November, while annual sales accelerated to 2.5% from 1.8%.
Meanwhile, a mixed set of US macroeconomic data did not stop the bearish sentiment towards the dollar. Markets remain cautious as US President Donald Trump’s destructive trade agenda and repeated operate of tariffs as a political weapon undermine investor confidence in US assets.
Concerns are also growing over political interference with the independence of the Federal Reserve (Fed) in the ongoing Supreme Court case involving Fed Governor Lisa Cook after President Donald Trump tried to remove her from office over mortgage fraud allegations.
At the same time, reports that US prosecutors have initiated a criminal investigation into Fed Chairman Jerome Powell over his congressional testimony on the central bank renovation project have increased investor concerns about the credibility and independence of US monetary policy.
These concerns are fueling fears of depreciation and encouraging investors to switch from the US dollar to other G10 currencies.
The US Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is trading around 98.76, hovering near its lowest level since October 3.
Meanwhile, persistent expectations that the Fed will make two rate cuts this year are increasing downward pressure on the dollar.
Sterling FAQs
The pound sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. As of 2022, it is the fourth most traded currency unit in the world, accounting for 12% of all transactions, with an average value of $630 billion per day. Its key trading pairs are GBP/USD, also known as “The Cable”, which makes up 11% of FX, GBP/JPY or “The Dragon” as traders call it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The most significant factor influencing the value of the pound sterling is the monetary policy pursued by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a constant inflation rate of around 2%. The basic tool to achieve this goal is to adjust interest rates. When inflation gets too high, the BoE will try to contain it by raising interest rates, making access to credit more costly for citizens and businesses. 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 that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to lower borrowing prices so that companies borrow more to invest in projects that generate economic growth.
The published data are used to assess the condition of the economy and may affect the value of the pound sterling. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the GBP exchange rate. A forceful economy is good for sterling. Not only will it attract more foreign investment, but it may prompt the BoE to raise interest rates, which will directly strengthen the British pound. Otherwise, if economic data is delicate, sterling is likely to fall.
The next significant data release for the pound sterling is the trade balance. This indicator measures the difference between what a country earns from exports and what the country spends on imports over a given period. If a country produces a highly sought after export, its currency will only benefit from the additional demand created by foreign buyers willing to buy those goods. Therefore, a positive net trade balance strengthens the currency and vice versa in the case of a negative balance.
