GBP/USD recovered earlier Asian-session losses and traded near 1.3460 in Europe on Friday after the UK published January Retail Sales data. UK Retail Sales rose 1.8% month on month, versus forecasts of 0.2% and December’s 0.4%.
Year on year, Retail Sales increased 4.5%, above estimates of 2.8% and a prior 1.9% reading that was revised down from 2.5%. Markets are awaiting the UK flash S&P Global PMI at 09:30 GMT, with Composite PMI expected at 53.4 versus 53.7 in January.
Dollar Data In Focus
The US Dollar held firm ahead of US flash S&P Global PMI data and preliminary US Q4 GDP figures due at 13:30 GMT. The Dollar Index traded near 98.00, close to its almost four-week high set on Thursday.
Technically, GBP/USD stayed below the 20-day EMA at 1.3575, with the February 6 low at 1.3508 marked as resistance. The 14-day RSI stood at 41.
The pound is the UK currency, dating to 886 AD, and accounts for 12% of FX transactions, or about $630 billion a day (2022). Key pairs include GBP/USD at 11%, GBP/JPY at 3%, and EUR/GBP at 2%.
A year ago today, we saw a surprisingly strong retail sales report for January 2025 boost the Pound Sterling. The currency recovered early losses to trade around 1.3460 against the US Dollar. This temporary strength came despite a generally negative technical bias at the time.
Strategy Considerations
Today, the situation shows both echoes and stark differences. The Pound is trading significantly lower, near 1.2650, but we have just seen another robust retail sales number for January 2026, which jumped 3.4%. This resilience in consumer spending is happening even with the Bank of England’s base rate holding at a multi-year high of 5.25%.
Inflation remains the key driver, and with the latest CPI figures holding at 4.0%, well above the Bank of England’s 2% target, pressure to maintain high interest rates persists. This contrasts with the US, where recent inflation came in at 3.1%, slightly easing pressure on the Federal Reserve. This divergence could favor the Pound in the near term.
Given this backdrop, we should consider strategies that benefit from potential Pound strength or stability against the Dollar. A bullish call spread on GBP/USD could be a prudent way to position for a gradual move higher. This approach defines our risk while capturing potential upside if the UK’s economic data continues to outperform expectations relative to the US.
Looking ahead, the upcoming flash PMI data for both the UK and US will be critical. We are watching to see if the UK’s service sector strength continues, as a strong reading could reinforce the case for the Bank of England to delay rate cuts. Any sign of weakness in the upcoming US GDP figures could further pressure the Dollar.
