The British pound gives up early gains against the US dollar and falls to near 1.3520 during the European trading session on Tuesday. GBP/USD is falling as the US dollar recovers from early losses.
As of writing, the US Dollar Index (DXY), which tracks the value of the dollar against six major currencies, is trading slightly higher near 98.45.
However, the US dollar outlook remains uncertain due to weak US December ISM manufacturing PMI data and signals from Minneapolis Fed Chairman Neel Kashkari that the labor market is weak.
Data released on Monday showed that the ISM manufacturing PMI fell to 47.9 in December from 48.2 the previous month. This is the tenth consecutive month with contraction in industrial business activity.
“The labor market is clearly slowing down,” the Fed Kashkari warned on Monday. Kashkari also noted that there is more room for interest rate cuts, noting that “My [Kashkari] I think we are [Fed] “Close to neutral now.”
The price of the British pound today
The table below shows the percentage change of the British Pound (GBP) against the major currencies listed today. The British pound was the strongest against the Swiss franc.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | 0.14% | 0.13% | 0.06% | 0.05% | -0.02% | -0.02% | 0.20% | |
| euro | -0.14% | -0.01% | -0.09% | -0.09% | -0.16% | -0.16% | 0.06% | |
| GBP | -0.13% | 0.00% | -0.08% | -0.08% | -0.15% | -0.15% | 0.07% | |
| JPY | -0.06% | 0.09% | 0.08% | -0.01% | -0.08% | -0.09% | 0.14% | |
| Canadian | -0.05% | 0.09% | 0.08% | 0.00% | -0.07% | -0.08% | 0.15% | |
| Australian dollar | 0.02% | 0.16% | 0.15% | 0.08% | 0.07% | -0.00% | 0.22% | |
| New Zealand dollar | 0.02% | 0.16% | 0.15% | 0.09% | 0.08% | 0.00% | 0.22% | |
| Swiss franc | -0.20% | -0.06% | -0.07% | -0.14% | -0.15% | -0.22% | -0.22% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the British pound from the left column and move along the horizontal line to the US dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Daily summary of market drivers: Investors await US non-farm payrolls data for December
- The British pound is turning upside down, even as market sentiment remains upbeat. Earlier in the day, the British currency outperformed its major counterparts as tensions eased in the market over the US military’s arrest of Venezuelan President Nicolas Maduro over drug trafficking charges.
- Investors turned risk off on Monday following US military action in Venezuela and US President Donald Trump’s announcement that Washington would restructure Venezuela’s oil industry.
- Domestically, the United Kingdom (UK) economic calendar will be light this week and therefore, market expectations of the Bank of England (BoE) monetary policy outlook are expected to push the British pound.
- The Bank of England is expected to follow a gradual path of monetary easing in 2026 as UK inflation remains above the 2% target, although price pressures have slowed in the past two months. The UK headline consumer price index (CPI) fell to 3.2% year-on-year in November from a peak of 3.8% in September.
- Going forward, investors will focus on the US Non-Farm Payrolls (NFP) data scheduled for release on Friday. US official employment data will significantly influence market expectations of the Fed’s monetary policy outlook as the central bank cuts interest rates by 75 basis points to a range of 3.50%-3.75% in 2025 due to downside labor market risks.
Technical Analysis: GBP/USD is having difficulty holding above the 61.8% Fibonacci retracement level at 1.3500.
GBP/USD is trading lower near 1.3520 at the time of writing. However, the price outlook is bullish as the 20-day Exponential Moving Average (EMA) is rising, keeping the short-term bias high. A sustained close above this measure favors tracking progress.
The Relative Strength Index (RSI) at 64.35 is positive for bulls, confirming the strong bullish momentum. Measuring from the high of 1.3799 to the low of 1.3008, the pair is struggling to hold above the 61.8% Fibonacci retracement level of 1.3497.
The trend tone remains positive as the pair holds above the bullish 20-EMA, with the latest indicator at 1.3444 acting as dynamic support on dips. On the upside, the pair can achieve further towards the 78.6% retracement levels at 1.3630 if it continues above the 61.8% Fibonacci barrier.
(The technical analysis for this story was written with the help of an artificial intelligence tool.)
Frequently asked questions about the US dollar
The US dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a large number of other countries where it is traded alongside local banknotes. It is the world’s most traded currency, accounting for more than 88% of total global forex trading volume, or an average of $6.6 trillion in transactions per day, according to 2022 data. After World War II, the US dollar took the place of the British pound as the world’s reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement in 1971 when the gold standard disappeared.
The most important factor affecting the value of the US dollar is monetary policy, which is shaped by the Federal Reserve. The Fed has two missions: achieving price stability (controlling inflation) and promoting full employment. The basic tool for achieving these two goals is adjusting interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, the Fed will raise interest rates, which helps the value of the US dollar. When the inflation rate falls below 2% or when the unemployment rate is very high, the Fed may cut interest rates, which affects the dollar.
In extreme cases, the Fed could also print more dollars and activate quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve dramatically increases the flow of credit into a stuck financial system. It is a non-standard policy measure used when credit dries up because banks will not lend to each other (due to fear of the counterparty defaulting). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It has been the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy U.S. government bonds mostly from financial institutions. Quantitative easing usually leads to a weakening of the US dollar.
Quantitative tightening (QT) is the reverse process whereby the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding in new purchases. It is usually positive for the US dollar.
