GBP/USD has fallen below 1.3450 after the UK Manufacturing PMI data came in weaker than expected. The final PMI for December was lowered to 50.6 from an earlier estimate of 51.2. Even with this decline, it is still above the growth threshold of 50.0 and the previous month’s figure of 50.2. The Pound dropped to a session low of 1.3450 during early London trading, reacting negatively to the revised data. However, it is still above 1.3400 and retains gains from the November-December rally, where it increased by 7% over the year.

Diverging Monetary Policies

The different monetary policies of the Fed and BoE are affecting the Pound’s performance. The UK cut rates in December due to high inflation and disagreements within the monetary policy committee. In contrast, the Fed is expected to cut rates again in 2026. The S&P Global Manufacturing PMI is a monthly measure of business activity in the UK’s manufacturing sector. It helps predict changes in GDP and industrial production. Actual readings of 50.6 were lower than the expected 51.2, indicating slower growth, yet still signaling expansion in the sector. The recent dip in GBP/USD below 1.3450 due to the weaker PMI data can be seen as a buying opportunity. Although the headline number of 50.6 missed expectations, it still points to growth and is better than the activity in November 2025. This should not be viewed as a change in trend, but rather as a temporary setback in an ongoing uptrend.

Fundamental Outlook Skewed to Upside

The outlook for the Pound remains positive, influenced by differing central bank policies. With UK inflation proving stubborn and finishing 2025 at 4.5%, the Bank of England is unlikely to make further rate cuts soon. This contrasts with the Federal Reserve, which hinted at at least one rate cut in 2026 during its December 2025 projections. We also need to consider the ongoing weakness of the US dollar, which has been under pressure for much of the past year. Recent data showed only 1.2% annualized GDP growth in the final quarter of 2025, supporting expectations for a more cautious Fed. This situation makes it hard for the dollar to maintain strong rallies. In the coming weeks, traders might consider buying call options on GBP/USD, taking advantage of the current price weakness to enter bullish positions at a lower cost. A strike price above 1.3500 could provide value, betting on a return to the late December highs. Selling put options with a strike below the key 1.3400 support level is another strategy to collect premiums while wagering that the recent rally will hold. We’ve seen this kind of pattern before, where pullbacks during a strong trend are absorbed by the market, similar to the consolidations seen during the pair’s 7% rally in 2025. The main risk lies in political factors, especially any sudden changes in US policy that could unexpectedly strengthen the dollar. Therefore, managing position size will be vital. Create your live VT Markets account and start trading now.

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