GBP/USD has risen above 1.3500 as the US Dollar weakens ahead of the ISM Services PMI release. On Wednesday during the Asian session, the pair traded around 1.3510, building on a slight gain from the previous session. Fed Governor Stephen Miran has called for aggressive interest rate cuts to boost the US economy, while President Neel Kashkari warned of potential job losses. Richmond Fed President Tom Barkin stressed the importance of careful interest rate adjustments based on economic data.

Geopolitical Tension and British Growth

Amid geopolitical tensions from US actions in Venezuela, the Pound Sterling has held its ground. On Tuesday, S&P Global announced that the UK Composite PMI rose to 51.4 in December 2025, though it was revised down from 52.1. This marks eight consecutive months of growth in the British private sector. The Pound Sterling, the oldest currency in the world, is widely traded, making up 12% of global foreign exchange transactions. The Bank of England’s decisions on monetary policy, especially regarding interest rates, significantly impact its value. Key economic indicators like GDP, PMIs, and Trade Balance are essential for understanding the Pound’s trajectory, as they reflect the economy’s health and can influence currency demand. Looking back to late 2025, the US Dollar began to weaken notably as dovish signals came from the Federal Reserve. Key officials hinted at possible rate cuts, a trend that has continued to gain support. This has created a favorable environment for GBP/USD, pushing it above the 1.3500 level.

US Economic Data and Policy Divergence

Recent US economic data confirmed this weakness. The ISM Services PMI for December 2025 fell to 50.8, falling short of expectations. Job openings also dropped, strengthening the case for the Fed to ease its policy. Currently, the CME FedWatch Tool indicates over a 90% chance of a rate cut this month. In contrast, the Bank of England is dealing with persistent UK inflation, last reported at 2.4% for December 2025. This difference in monetary policy, with the Fed likely to cut rates while the BoE may hold steady, supports the Pound’s strength. Historically, such policy differences, like those seen in 2014-2015, have often led to sustained trends in the GBP/USD pair. In the coming weeks, consider strategies that take advantage of further GBP/USD gains and rising volatility. Buying call options might be an effective way to gain exposure while minimizing downside risk. We are closely monitoring the 1.3650 level as the next key resistance point. Even with a positive outlook, we must stay cautious of underlying risks highlighted late last year, including geopolitical tensions. The UK’s economic data, especially the upcoming Q4 2025 GDP figures, could also lead to volatility. Any unexpected strength in US data could quickly reverse the dollar’s recent decline. Create your live VT Markets account and start trading now.

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