Pound Sterling declines as US attacks on Venezuela dampen market mood

Pound Sterling Weakens Against Safe-Haven Currencies Amid Geopolitical Tensions

At the beginning of the week, the British Pound (GBP) comes under pressure when compared to traditional safe-haven currencies, although it continues to outperform more volatile counterparts. The GBP has slipped by 0.2%, trading close to 1.3420 against the US Dollar (USD), as investors adopt a more cautious stance following recent US military actions in Venezuela and the apprehension of President Nicolas Maduro on drug-related allegations.

Meanwhile, the US Dollar Index (DXY)—which measures the value of the dollar against a basket of six major currencies—has climbed to a level not seen in over three weeks, reaching 98.80.

Over the weekend, the United States conducted operations in Venezuela and revealed plans to overhaul the country’s oil sector by involving American energy firms. President Donald Trump also issued warnings of potential interventions in Colombia and Iran.

According to Reuters, President Trump remarked, “Colombia is in a dire state, led by someone who is heavily involved in cocaine production and its distribution to the United States.”

Regarding Iran, President Trump cautioned that the nation would face severe consequences if the government began targeting protestors.

Key Market Drivers: Sterling Slides Against Dollar as Week Begins

• The Pound is performing better against riskier currencies, supported by expectations that the Bank of England (BoE) will continue a gradual approach to monetary easing into 2026. During its final policy meeting of 2025, the BoE signaled that interest rates would continue to decline gradually, having just reduced rates by 25 basis points to 3.75% in a close 5-4 vote in December.
• Analysts suggest the BoE is opting for a cautious easing strategy, as UK inflation remains well above the 2% target, despite showing signs of cooling in recent months.
• Headline inflation, as measured by the Consumer Price Index (CPI), dropped to 3.2% in November, down from a September peak of 3.8%.
• This week, the GBP/USD exchange rate is expected to experience heightened volatility, with several key US economic reports due, including Friday’s Nonfarm Payrolls (NFP) data for December.
• Investors are closely monitoring official US employment figures for insights into the health of the labor market. In 2025, the Federal Reserve implemented three rate cuts, bringing rates down to a range of 3.50%-3.75% to counteract weakening employment conditions.
• On Monday, attention will turn to the ISM Manufacturing Purchasing Managers’ Index (PMI) for December, set for release at 15:00 GMT. The PMI is anticipated to edge up slightly to 48.3 from November’s 48.2, indicating continued contraction in business activity, though at a slower pace.

GBP/USD Technical Overview: Approaching the 20-Day EMA

On the daily chart, GBP/USD is trading at 1.3427 at the time of reporting. The pair remains just above its rising 20-day Exponential Moving Average (EMA) at 1.3422, maintaining a short-term upward bias. The steady climb of the EMA continues to provide support during minor pullbacks.

The Relative Strength Index (RSI) currently stands at 54, reflecting a neutral stance and a recent decrease from higher levels, which points to a slowdown in bullish momentum.

Looking at price levels, the 61.8% Fibonacci retracement at 1.3491, measured from the July high of 1.3791 to the November low of 1.3008, serves as the next resistance. Immediate support is found at the 50% retracement level of 1.3399. A daily close above 1.3491 could signal further gains, while a move below 1.3399 might trigger a deeper correction.

(This technical analysis was generated with the assistance of an AI tool.)