25/01/26

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The British Pound Sterling has exhibited a relatively strong performance against the US Dollar as the week draws to a close, buoyed by positive domestic data and geopolitical developments. Contrastingly, the US Dollar has come under pressure amid escalating US-EU tensions surrounding the dispute over Greenland’s sovereignty, impacting the dollar’s global appeal.

Initially, the GBP/USD currency pair showed resilience, with bids emerging near 1.3344 following a cautious market open influenced by geopolitical uncertainties. The pair gained further momentum, climbing past 1.3500 midweek after positive UK retail sales and preliminary PMI figures bolstered confidence in economic momentum. By Friday, the Pound extended its gains, trading above key resistance levels due to robust economic indicators.

The US Dollar saw a sharp correction early in the week, retreating from a seven-week high of 99.49 on the US Dollar Index. An initial decline was driven by US tariffs and diplomatic tensions with Europe over Greenland, prompting a risk-off sentiment. However, this decline was partially offset later in the week after US President Trump indicated a willingness to de-escalate tariffs and refrained from military action, easing some geopolitical concerns. Despite this, the prevailing market sentiment remained cautious, and the dollar continued to weaken overall amid fears that ongoing diplomatic strains could undermine long-term US trading relationships.

On the UK economic front, recent releases painted a resilient picture. Unemployment remained steady at 5.1%, with employment growth adding 82,000 jobs in the latest quarter. Wage growth slowed marginally to 4.5%, while inflation accelerated slightly to 3.4% in December, driven by rising prices in utilities and other volatile sectors. Retail sales rebounded in December, increasing by 0.4% month-on-month after two months of decline, and PMI data indicated robust activity across manufacturing and services sectors.

Looking ahead, market attention will focus on the upcoming Federal Reserve policy announcement, with expectations of a pause in interest rate changes amidst ongoing economic assessment. The potential announcement of the next Fed Chair later this month is also anticipated to generate heightened volatility. Meanwhile, traders will monitor the BoE’s policy outlook, with recent UK data supporting a cautiously optimistic view of the economy’s resilience. Technical indicators suggest GBP/USD may seek further gains toward 1.3625, provided it maintains momentum above key support levels.