USD Finds Support As GBP Momentum Fades

The Pound US Dollar (GBP/USD) exchange rate touched a near four-month high on Tuesday before retreating as UK data disappointed.

DAILY RECAP:

The Pound (GBP) began Tuesday’s session on strong footing against the US Dollar, with GBP/USD briefly climbing to a near four-month high following Monday’s rally.

Sterling had drawn support from comments by Prime Minister Keir Starmer pointing toward closer alignment with the EU single market, which GBP investors hope could help improve investment flows and medium-term growth prospects.

However, the Pound quickly retreated from its highs. Initial profit-taking was compounded by the UK’s final services PMI for December, which was revised lower from 52.1 to 51.4, tempering optimism over the strength of the UK services sector.

Meanwhile, the US Dollar (USD) edged modestly higher from recent lows as some investors moved to buy the dip.

That said, a mixed market mood capped USD gains. Ongoing geopolitical concerns weighed on risk appetite, even as global equity markets continued to perform well, leaving the safe-haven Dollar without a clear directional catalyst.

Near-Term GBP/USD Forecast: Weak US Data to Dent the Dollar?

Looking ahead, Wednesday brings several potentially market-moving US economic releases, beginning with the ADP employment change figures for December.

Private sector job growth is expected to have rebounded last month, though at a relatively modest pace of around 45,000, which could still weigh on the US Dollar.

Further pressure on USD may follow later in the session if factory orders contract as forecast, job openings dip in November, and the ISM services PMI confirms a slowdown in activity.

With UK data thin on the ground midweek, movement in GBP/USD is likely to be driven primarily by US data and shifts in market risk appetite. A risk-on mood could support the increasingly risk-sensitive Pound, while renewed caution may favour the US Dollar.