GBP/USD rises to four-month highs around 1.3600

GBP/USD is extending its strong weekly rally and is edging closer to the 1.3600 handle on Friday, marking fresh four-month highs. The pair’s upside momentum is being fueled by a deepening decline in the US Dollar, while supportive UK economic data further reinforces the bullish trend.

Fundamental Analysis Overview

The latest PMI data signaled a strong expansion in overall business activity, driven by a notable pickup in both manufacturing and services. The Composite PMI surged to 53.9 in January from 51.4 in December, comfortably surpassing market expectations of 51.7.

The Services PMI climbed to 54.3, exceeding both the forecast of 51.7 and the previous reading of 51.4, while the Manufacturing PMI also improved markedly, rising to 51.6 from 50.6.

In addition, UK Retail Sales rebounded in December after two consecutive monthly declines. Data from the Office for National Statistics (ONS) showed that Retail Sales, a key gauge of consumer spending, increased by 0.4% month-over-month, defying expectations for a 0.1% contraction.

On a year-on-year basis, consumer spending rose sharply by 2.5%, well above the consensus forecast of 1% and up from a revised 1.8% in November (previously reported at 0.6%).

The stronger-than-expected Retail Sales figures are likely to reduce market expectations for near-term interest rate cuts by the Bank of England (BoE).

Looking ahead, the UK economic calendar is relatively light next week, leaving broader market sentiment and expectations surrounding the BoE’s February policy decision as the primary drivers of Pound Sterling performance.

GBP/USD Technical Outlook

GBP/USD is trading around 1.3437 at the time of writing. The 20-day Exponential Moving Average is hovering near 1.3439, with price currently testing this dynamic resistance. A daily close above the moving average would strengthen near-term momentum. The Relative Strength Index (RSI) stands at 52, edging higher but still signaling broadly neutral momentum.

Using the move from the 1.3780 peak to the 1.3006 trough, the 50% Fibonacci retracement at 1.3393 continues to act as a hurdle on rebounds, while the 61.8% retracement at 1.3485 limits upside potential. A decisive break above the latter would suggest the broader bearish bias is losing strength and could pave the way for a deeper recovery, whereas rejection at that level would likely keep the pair confined to a range.

Sources: Fxstreet