The GBP/USD pair is trading in positive territory near 1.3660, the highest level since September 17, 2025, during Monday’s early European session. The pound sterling (GBP) is gaining ground against the US dollar after stronger-than-expected data from the UK Retail and Purchasing Managers’ Index (PMI). On Monday, investors will closely monitor the November report on US robust goods orders.
Figures published on Friday by the Office for National Statistics (ONS) showed UK retail sales rose 0.4% month-on-month in December, after falling 0.1% in November. This result was better than the forecast assuming a decline of 0.1% in the month in question.
Meanwhile, core retail sales, excluding auto fuel sales, increased by 0.3% m/m in December, compared to the previous decline of 0.4% (adjusted from -0.2%), above the market consensus of a decline of 0.2%. The UK’s S&P Global UK Composite PMI rose to 53.9 in December, also above expectations, reaching its highest level in 21 months.
These reports have led some analysts to predict a potential delay in further Bank of England (BoE) interest rate cuts, which would raise sterling against the US dollar (USD). The British central bank is expected to keep interest rates on hold at its next meeting in February. According to Reuters, markets are fully pricing in a quarter-point interest rate cut by June.
The U.S. Federal Reserve (Fed) will announce its latest interest rate decision on Wednesday, expecting rates to remain unchanged at a target range of 3.50% to 3.75%. Traders will be closely watching Fed Chairman Jerome Powell’s remarks after the policy meeting, as his insights could provide crucial clues in the coming months. Any hawkish comments from Fed officials could provide some support for the USD and hurt the major currency pair in the near future.
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 crucial 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 steep 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 powerful 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 faint, sterling is likely to fall.
The next crucial 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.
