USD Strengthens as GBP/USD Faces Pressure Ahead of Nonfarm Payrolls Release

Services Boom Pushes US Dollar to Four-Week Highs

The US Dollar has surged to near four-week peaks, leaving the British Pound under sustained selling pressure. GBP/USD dropped to around 1.3450 during European trading on Thursday as the greenback maintained its commanding position, supported by surprisingly robust economic data from the United States.

The catalyst for USD’s strength centers on December’s ISM Services PMI, which accelerated to 54.4—up from November’s 52.6—exceeding analyst expectations of 52.3. This marks the strongest reading since October 2024 and signals continued resilience in America’s service sector. Employment and New Orders components within the PMI also delivered upside surprises, reinforcing the narrative of economic vigor.

The reverberations are clear in the currency markets. The US Dollar Index (DXY), tracking the greenback against six major currencies, is trading near its 98.86 peak hit on Monday. Meanwhile, sterling struggles to find footing as traders reassess Federal Reserve policy expectations. ING analysts note that the strong services data “complicates the case for aggressive Fed rate cuts,” suggesting the central bank may maintain a more hawkish stance than previously anticipated.

Employment Data Will Define Near-Term Direction for GBP/USD

The immediate landscape for GBP/USD hinges on employment figures from both sides of the Atlantic. The December Nonfarm Payrolls (NFP) release scheduled for Friday remains the week’s headline event, with market participants parsing every detail for clues about the Fed’s 2025 monetary policy path.

Prior signals are mixed. ADP private payroll figures showed only 41,000 new jobs in December, a modest improvement from November’s revised decline of 29,000. The JOLTS report revealed 7.146 million job openings in November, falling shy of both the 7.6 million forecast and October’s 7.449 million figure. These softer labor market indicators stand in contrast to the upbeat services data, creating uncertainty about the Fed’s next move.

Across the Channel, the Bank of England’s policy backdrop differs markedly. Following its December decision, the BoE signaled a “gradual downward trajectory” for rates, positioning sterling at a disadvantage versus the resilient dollar. UK employment data for the three months ending November, due early next week, could shift sentiment around the pound, though the absence of major UK data releases this week has allowed global risk sentiment to dominate.

Pound Sterling Navigates Between Risk Appetite and Haven Flows

GBP/USD’s performance on Thursday reflected the complex interplay of market forces. Against traditional safe-haven currencies, the pound struggled as investors favored the dollar. However, sterling outperformed more volatile emerging market currencies, suggesting selective dollar strength rather than broad risk-off dynamics.

This bifurcated price action indicates traders are cherry-picking safe assets on the margin, with the dollar winning out over sterling on relative yield and economic momentum rather than outright panic. The pound remains tethered to global risk sentiment—a headwind during weeks marked by thin trading volumes and limited UK economic catalysts.

Technical Levels Define GBP/USD’s Pivot Points

At current levels near 1.3455, GBP/USD sits just above the 20-day Exponential Moving Average (EMA) at 1.3443, which continues to anchor short-term price action. The rising trajectory of this key support level has bolstered the technical setup for bulls, though momentum has clearly eased from recent highs.

The 14-day Relative Strength Index (RSI) registers 54.51, having retreated from the upper 60s where it had signaled strong momentum weeks prior. While this neutral reading suggests neither buyers nor sellers have overwhelming command, the RSI’s positioning above the 50 midpoint preserves a slight positive tilt.

The 61.8% Fibonacci retracement at 1.3491—calculated from the swing high of 1.3791 to the low of 1.3008—currently caps upside potential. A break above this resistance level could open the door to the 78.6% retracement near 1.3623, allowing USD vs GBP to reverse further in the dollar’s favor.

Conversely, if selling pressure intensifies and GBP/USD closes beneath the 20-day EMA support at 1.3443, the pair risks sliding toward the December 17 low and the 38.2% Fibonacci retracement zone around 1.3310. Traders will be watching these levels closely as employment data arrives.

(Technical analysis prepared with AI assistance)