GBP Rises on Stronger Data as USD Softens Ahead of Expected Fed Rate Cut

Key Insight:

• Thin market conditions help lift the pound’s relative performance
• Typical year-end USD patterns begin to emerge

Market Recap:

The US dollar extended its decline for a second session as softer economic data pushed Treasury yields lower and strengthened expectations of a 25bps rate cut next week. ADP employment figures surprised to the downside with a –32,000 print—the weakest reading since early 2023—adding to evidence of a gradually cooling labour market. While the ISM services index edged slightly higher, the report showed a moderation in price pressures and an improvement in the employment component compared with the prior month.

The standout performer in FX was GBP, which rallied sharply following upward revisions to UK PMI data. The move triggered a series of stop-losses in GBPEUR, propelling the pair back toward a significant resistance area. GBPUSD also accelerated higher, benefiting from both the stronger UK data and broad-based USD softness. With momentum shifting, a retest of the 28 October high appears increasingly plausible if the dollar remains under pressure.

Today's Market Watch:

US labour data is back in focus today, with markets looking for further signs that the employment backdrop is losing momentum. Any additional softness is likely to reinforce expectations of a rate cut next week—odds are already hovering around 93%. This, combined with typical year-end seasonality, continues to weigh on the USD, which historically performs poorly in December. There is also growing market chatter about the next Fed Chair potentially leaning more dovish and more aligned with Trump’s push for lower rates, adding another layer of uncertainty for the dollar.

Sterling’s sharp move higher after yesterday’s stronger PMI revisions appears to have been amplified by thinner December trading conditions. Even so, elevated levels may offer GBP sellers an opportunity to reduce exposure given the ongoing domestic uncertainty. With liquidity limited, limit orders remain a useful tool for capturing intraday swings, especially as GBPUSD could still drift towards its late-October peak if USD softness persists.

Meanwhile, GBPEUR is pressing against a significant resistance band. A clean break above this zone would open the door to a retest of the October highs in the weeks ahead.

4th December 2025

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