GBP/USD retreats from multi-month high amid USD uptick

The GBP/USD pair edges lower during the Asian session on Tuesday and reverses a part of the previous day’s strong move up to the 1.3545-1.3550 area, or its highest level since September 2025. The downtick, however, lacks bearish conviction, with spot prices currently trading around the 1.3535-1.3530 region, down less than 0.10% for the day.

As investors look past Monday’s mixed US PMI data for December 2025, the US Dollar (USD) attracts some safe-haven flows on the back of rising geopolitical tensions and acts as a headwind for the GBP/USD pair. The S&P Global US Manufacturing PMI held steady at 51.8 and indicated continued expansion. In contrast, the Institute for Supply Management’s (ISM) Manufacturing PMI showed signs of persistent contraction and declined to 47.9 from 48.2 in November.

However, the US military attack on Venezuela, heightened political tensions between Saudi Arabia and the UAE over a conflict in Yemen, and the lack of progress in the Russia-Ukraine peace deal help limit the downside for the Greenback. The upside for the USD, however, seems capped amid bets for at least two more interest rate cuts by the US Federal Reserve (Fed) this year. This, along with hawkish Bank of England (BoE) expectations, supports the GBP/USD pair.

A narrow vote split to lower borrowing costs in December pointed to differences within the committee amid the recent inflation surprise. In fact, the British Retail Consortium reported this Tuesday that overall shop prices were up 0.7% YoY in December and food inflation rose to 3.3% from 3.0% in November. This might force investors to scale back expectations for more policy easing by the BoE and underpin the British Pound (GBP), warranting caution for the GBP/USD bears.

Traders now look forward to the release of the final Services PMI from the UK and the US for a fresh impetus. The immediate market reaction, however, is likely to be muted as the focus remains glued to the closely-watched US Nonfarm Payrolls (NFP) report on Friday. Apart from this, other important US macro data scheduled at the beginning of a new month might provide cues about the Fed’s rate-cut path, which will influence the USD demand and drive the GBP/USD pair.