The Pound Sterling (GBP) accelerated its bullish momentum against the US Dollar (USD), with GBP/USD recording its highest level in four years near 1.3870 before experiencing a late pullback.
Pound Sterling rejoiced USD meltdown
Once again, it was all about the USD’s performance and GBP/USD dancing to its tune. Investors’ confidence in the US assets, such as the Greenback, US Treasury bonds, etc. continued to diminish amid US President Donald Trump’s erratic international policies and attacks on the Federal Reserve’s (Fed) independence.
Markets also remained wary and moved away from the USD ahead of the Fed policy announcement.
Trump threatened over the weekend that he would impose a 100% tariff on Canada if it follows through on a trade deal with China. Moreover, the US currency faced headwinds from a weak Conference Board (CB) Consumer Confidence data released on Tuesday. US consumer confidence slumped to the lowest level in more than 11.5 years in January, to 84.5.
Adding to the woes surrounding the Greenback, Russia drew a hard red line in peace negotiations with Ukraine during the US-brokered peace talks in Abu Dhabi last week. The trilateral talks ended without a deal on Saturday as Ukraine outright rejected Russia’s demand to cede all of the Donbas region to end the nearly four-year war.
By midweek, Trump’s comments broke the camel’s back, smashing the USD to its lowest level in four years against its six major currency rivals. Trump said on Tuesday the value of the dollar was “great”, when asked if he thought it had declined too much.
However, the Fed monetary policy outcome somewhat helped pause the US Dollar downtrend, lifting the buck from the dumps. The Fed on Wednesday kept the fed funds rates unchanged, as widely expected, but Chairman Jerome Powell struck a less dovish tone, noting that “the US economy expanded at a solid pace last year and is coming into 2026 on a firm footing.”
Later that day, US Treasury Secretary Scott Bessent said in a CNBC interview that the US has always had a “strong dollar” policy and that they are “absolutely not” intervening in the Japanese currency markets. Bessent’s comments also provided the much-needed relief to USD buyers.
In light of this, GBP/USD embarked on a corrective decline and targeted the 1.3700 level. The pullback extended on Friday, with the Greenback building its recovery momentum amid profit-taking ahead of Trump’s announcement of his Fed Chair pick.
The Trump administration finally nominated former Fed Board member Kevin Warsh as Powell’s replacement. His decision still needs to pass through the Senate, yet the USD ticked lower with the announcement that puts a hawk in Fed’s Chair
Meanwhile, a Wall Street Journal (WSJ) report that President Trump and Senate Democrats struck a deal to avert a government shutdown also bolstered the USD upswing across the board.
The BoE, US Nonfarm Payrolls and geopolitics in focus
Pound Sterling traders brace for a critical week as the Bank of England (BoE) is expected to announce its monetary policy decision on ‘Super Thursday’. BoE Governor Andrew Bailey’s press conference will follow, providing fresh insights on the central bank’s path forward on interest rates.
GBP/USD is set to experience intense volatility on the BoE policy announcements and updated economic forecasts. But the reaction could remain short-lived as traders would shift their attention toward Friday’s US labor market data.
The headline Nonfarm Payrolls figure will be closely scrutinized alongside the Unemployment Rate for fresh signs on the state of the US labor market, which could significantly impact the direction of the Fed’s interest rates and the USD.
That said, the US ISM Manufacturing PMI data, due on Monday, will likely set the tone for the USD markets for the upcoming week.
Tuesday will feature the US JOLTS Job Openings, while the ADP Employment Change and ISM Services PMI will be published on Wednesday.
Apart from the data releases, all eyes will remain on Trump’s decisions concerning his earlier warnings on Iran and tariffs.
GBP/USD Technical Analysis
The 21- and 50-day Simple Moving Averages (SMAs) rise above the 100- and 200-day ones, underscoring a bullish bias, while price holds above all of them.
The 50-day SMA closed above the 200-day SMA earlier in the week, validating a Golden Cross, reinforcing that more upside remains on the cards.
The 21-day SMA at 1.3533 offers nearby dynamic support. The Relative Strength Index (RSI) sits at 68.64, elevated near the overbought threshold and signaling firm momentum.
The 100- and 200-day SMAs trend higher, reinforcing the medium-term advance as the pair maintains traction above these longer gauges. RSI has eased from recent extremes yet remains above 50, keeping the bias positive. A dip could test the 50-day SMA at 1.3434, and holding above it would keep the upside scenario intact.
(The technical analysis of this story was written with the help of an AI tool.)
