GBP/USD has dipped below 1.3450 following weaker-than-expected UK Manufacturing PMI data. The final PMI for December has been revised to 50.6 from an earlier estimate of 51.2. Despite the decline, it remains above the growth threshold of 50.0 and the previous month’s figure of 50.2.
The Pound retreated to session lows of 1.3450 during early London trading, performing negatively following the downward revision. However, it still remains above 1.3400 and maintains gains from the November-December rally, where it saw a 7% increase throughout the year.
Diverging Monetary Policies
Diverging monetary policies between the Fed and BoE are influencing the Pound’s performance. The UK cut rates in December due to high inflation and internal opposition within the monetary policy committee. Meanwhile, the Fed is expected to cut rates again in 2026.
The S&P Global Manufacturing PMI is a monthly indicator that measures business activity in the UK’s manufacturing sector. It predicts changes in official data such as GDP and industrial production. With actual readings of 50.6 against a consensus of 51.2, the data reveals slower growth but still indicates expansion within the sector.
The recent dip in GBP/USD below 1.3450, prompted by the weaker manufacturing PMI data, should be viewed as a potential entry point. While the headline number of 50.6 was a miss against expectations, it still signals expansion and is an improvement over the activity we saw in November 2025. We see this not as a trend reversal, but as a temporary setback within a larger uptrend.
Fundamental Outlook Skewed to Upside
The fundamental outlook remains skewed to the upside for the pound, driven by diverging central bank policies. With UK inflation proving sticky and ending 2025 at 4.5%, the Bank of England is highly unlikely to deliver further rate cuts anytime soon. This contrasts sharply with the Federal Reserve, whose own projections from December 2025 signaled at least one rate cut is on the table for 2026.
We must also consider the persistent weakness in the US dollar, which has been under pressure for much of the past year. Signs of an economic slowdown, evidenced by recent data showing just 1.2% annualized GDP growth in the final quarter of 2025, reinforce expectations for a more dovish Fed. This environment makes sustained dollar rallies difficult to achieve.
In the coming weeks, traders could consider buying call options on GBP/USD, using this price weakness to enter bullish positions at a lower cost. A strike price above 1.3500 could offer value, betting on a move back toward the late December highs. Selling put options with a strike below the key 1.3400 support level is another viable strategy for those looking to collect premium while betting that the recent rally’s foundation will hold firm.
We’ve seen this pattern before, where pullbacks during a strong trend are absorbed by the market, similar to the consolidations seen during the pair’s 7% rally in 2025. The primary risk remains political, particularly any sudden shifts in US policy that could unexpectedly boost the dollar. Therefore, managing position size will be crucial.
