Markets Turn to US Inflation as Dollar Pauses
Sterling is continuing to trade close to two-month highs against the US dollar, showing notable resilience despite a mixed economic backdrop in both the UK and the US. While recent domestic data has been underwhelming and the Autumn Budget failed to spark much enthusiasm in the markets, the pound has still managed to outperform not only the dollar, but the euro and several other major currencies.
UK GDP data released this morning confirmed that the economy flatlined in the third quarter, broadly in line with market expectations. On its own, this would normally be a headwind for Sterling. However, the reaction in currency markets has been muted, with the pound continuing to trade higher.
Much of this resilience appears to stem from the market’s reaction to last week’s interest rate decision from the :contentReference[oaicite:0]{index=0}. While rates were cut, the accompanying guidance was interpreted as relatively cautious, helping to reinforce the view that UK monetary policy remains more balanced than some of its peers.
As a result, investors seem less focused on the absence of near-term growth and more encouraged by Sterling’s relative stability in an otherwise uncertain global environment.
Across the Atlantic, the US dollar continues to struggle for momentum. Data released yesterday showed US inflation falling to 2.7% year-on-year in November, down from 3% the previous month and below many forecasts.
At the same time, signs of rising unemployment have added to the pressure on the greenback. Together, these factors have strengthened expectations that the :contentReference[oaicite:1]{index=1} could begin cutting interest rates in the early part of 2026.
This shift in expectations has weighed on the dollar, helping to keep GBP/USD supported near recent highs and reinforcing the sense that US monetary policy may be entering a more accommodative phase.
With the festive period approaching and few major economic releases scheduled in the near term, markets are moving into a traditionally quieter phase. In such conditions, existing trends often persist, and for now, that favours continued Sterling strength into the early weeks of 2026.
That said, thinner liquidity can amplify short-term moves, particularly if sentiment around interest rates or geopolitics shifts suddenly. Even so, the pound appears to be ending the year on a relatively solid footing.
For businesses making or receiving international payments, particularly in US dollars, current levels may present an opportunity to secure favourable GBP/USD rates. Those with euro exposure may also benefit from Sterling’s broader outperformance.
Qumoney’s FX specialists work closely with businesses to help navigate changing market conditions, offering tailored risk management strategies and practical insight.
Speak to us today to review your currency exposure and plan ahead for the first quarter of 2026.
