GBP/USD erased its earlier losses in the Asian session and traded near 1.3460 in Europe on Friday after the UK released January Retail Sales data. Sales rose 1.8% month over month, beating forecasts of 0.2% and December’s 0.4%.
Year over year, Retail Sales climbed 4.5%. That was above estimates of 2.8% and the previous 1.9% reading, which was revised down from 2.5%. Markets now await the UK flash S&P Global PMI at 09:30 GMT. The Composite PMI is expected at 53.4, down from 53.7 in January.
Dollar Data In Focus
The US Dollar stayed firm ahead of the US flash S&P Global PMI and the preliminary US Q4 GDP release, both due at 13:30 GMT. The Dollar Index traded near 98.00, close to the almost four-week high it set on Thursday.
On the technical side, GBP/USD remained below the 20-day EMA at 1.3575. The February 6 low at 1.3508 acted as resistance. The 14-day RSI was 41.
The pound is the UK’s currency and dates back to 886 AD. It accounts for about 12% of FX transactions, or roughly $630 billion per day (2022). Major pairs include GBP/USD (11%), GBP/JPY (3%), and EUR/GBP (2%).
A year ago today, a stronger-than-expected January 2025 retail sales report lifted the Pound Sterling. After early losses, it recovered to trade around 1.3460 against the US Dollar. This move was short-lived and happened even though the technical outlook was broadly negative.
Strategy Considerations
Today shows some similarities, but also key differences. The Pound is much lower, trading near 1.2650. Still, January 2026 retail sales were also strong, rising 3.4%. This strength in consumer spending is notable because the Bank of England has kept its base rate at a multi-year high of 5.25%.
Inflation remains the main driver. The latest CPI is 4.0%, well above the Bank of England’s 2% target. That keeps pressure on the BoE to hold rates higher for longer. In the US, inflation was 3.1%, which slightly reduces pressure on the Federal Reserve. This gap could support the Pound in the near term.
With that in mind, it may make sense to look at strategies that benefit from Pound strength or stability versus the Dollar. A bullish call spread on GBP/USD could be a sensible way to position for a gradual rise. It limits downside risk while allowing upside participation if UK data continues to beat US data.
Next, the flash PMI releases for both the UK and the US will matter. Watch whether UK services remain strong, since a solid reading could support the case for the BoE to delay rate cuts. At the same time, weaker US GDP numbers could add pressure on the Dollar.
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