Pound Sterling drops as US raids on Venezuela sours market sentiment
- The Pound Sterling is under pressure as the US raid in Venezuela has increased the safe-haven demand.
- The BoE is expected to follow a gradual monetary easing cycle in 2026.
- Investors await the US ISM Manufacturing PMI data for December.
The Pound Sterling (GBP) faces selling pressure against its safe-haven currency peers, outperforming risky ones at the start of the week. The British currency drops 0.2% to near 1.3420 against the US Dollar (USD) as investors turn risk-averse, following the United States’ (US) strike on Venezuela and the capture of President Nicolas Maduro against drug-trafficking charges.
At the same time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, revisits an over three-week high at 98.80.
Over the weekend, the US raided Venezuela and announced that it will restructure its Oil industry by bringing American Oil companies. US President Donald Trump also threatened to conduct raids in Colombia and Iran.
"Colombia’s very sick, run by a sick man who likes making cocaine and selling it to the United States,” Trump said, Reuters reported.
On Iran, US President Trump said the country would “get hit very hard” if Tehran began killing protestors.
Daily digest market movers: Pound Sterling drops against US Dollar at the start of the week
- The Pound Sterling trades higher against its risky currency peers on expectations that the Bank of England (BoE) will follow a gradual monetary easing cycle in 2026. The BoE stated in its last policy meeting of 2025 that the monetary policy will remain on a “gradual downward path” after reducing interest rates by 25 basis points (bps) to 3.75% with a 5-4 majority in December.
- Market experts believe that the BoE favored a moderate easing campaign as the United Kingdom (UK) inflation is well above the 2% target despite cooling down in the last two months.
- The UK headline Consumer Price Index (CPI) inflation came down to 3.2% in November from the peak of 3.8% seen in September.
- This week, the GBP/USD pair is expected to face significant volatility as a string of US economic data is lined up for release, notably the Nonfarm Payrolls (NFP) data for December on Friday.
- Investors will pay close attention to the US official employment data to get fresh cues on the current state of the job market. In 2025, the Federal Reserve (Fed) delivered three interest rate cuts, pushing them lower to the 3.50%-3.75% range to support weakening labor market conditions.
- In Monday’s session, investors will focus on the ISM Manufacturing Purchasing Managers’ Index (PMI) data for December, which will be published at 15:00 GMT. The ISM Manufacturing PMI is expected to tick higher to 48.3 from 48.2 in November, suggesting that the business activity contracted again, but at a slightly moderate pace.
Technical Analysis: GBP/USD corrects to near 20-day EMA
In the daily chart, GBP/USD trades at 1.3427 at the time of writing. Price holds marginally above a rising 20-day Exponential Moving Average (EMA) at 1.3422, keeping the short-term bias pointed higher. The average has advanced steadily and continues to underpin shallow pullbacks.
The Relative Strength Index (RSI) indicator at 54 (neutral) has slipped from recent elevated readings, signaling moderating bullish momentum.
Measured from the 1.3791 high in early July to the 1.3008 low in November, the 61.8% Fibonacci retracement at 1.3491 stands as the next resistance, while the 50% retracement at 1.3399 defines the immediate support. A daily close above 1.3491 would extend the advance, whereas a drop back below 1.3399 could invite a deeper pullback.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.