Pound to Dollar Rate Subdued on Strong US Economic Reports

January 8, 2025 - Written by John Cameron

STORY LINK Pound to Dollar Rate Subdued on Strong US Economic Reports

The Pound to US Dollar exchange rate (GBP/USD) softened on Tuesday, with the pair retreating from earlier gains as US economic data outperformed expectations.

The US Dollar (USD) initially came under pressure on Tuesday, weighed down by improved market risk sentiment.

Investors were encouraged by reports suggesting the incoming Trump administration might adopt a more balanced approach to trade policies, reducing fears of immediate tariff escalations.

However, the US Dollar recovered in the afternoon following the release of robust US economic data.

The ISM services PMI indicated that activity in the US services sector grew faster than expected in December, while the latest Job Openings and Labor Turnover Survey (JOLTs) showed job openings climbed to a six-month high in November.

These upbeat reports bolstered the US Dollar, as they cast doubt on the likelihood of aggressive interest rate cuts from the Federal Reserve in the months ahead.

The Pound (GBP) faced headwinds on Tuesday, as concerns over the UK’s economic outlook continued to weigh on Sterling sentiment.

A report from the British Retail Consortium revealed that retail sales during the crucial Christmas period were nearly flat, stoking fears of further economic weakness.

UK retailers warned that sluggish sales, combined with rising operational costs and higher taxes anticipated in 2025, could lead to significant job losses in the sector.

These developments added to speculation that the Bank of England (BoE) may accelerate its plans to ease monetary policy, increasing downward pressure on the Pound.

GBP/USD Exchange Rate Forecast: Fed Minutes in Focus

Looking forward, the Pound to US Dollar exchange rate could be influenced by the release of the Federal Open Market Committee’s (FOMC) latest meeting minutes.

The Fed’s December guidance suggested a cautious approach to further monetary easing, with expectations for only two rate cuts in 2025.

If the minutes reveal broad consensus among policymakers supporting this outlook, the US Dollar may continue to rally.

Meanwhile, the lack of significant UK economic data is likely to leave the Pound exposed to external influences, potentially limiting its upside potential.

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TAGS: Pound Dollar Forecasts