Pound Sterling to Dollar Forecast: GBP Pulls Back after Weak UK Services Data

Modified: Wednesday, 7 January 2026 10:46 BST - Written by Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: GBP Pulls Back after Weak UK Services Data

The Pound to US Dollar exchange rate (GBP/USD) retreated on Tuesday after briefly climbing to its strongest levels in nearly four months, with weaker UK data taking some of the shine off Sterling’s recent rally.

At the time of writing, GBP/USD was trading around $1.3525, having slipped back from an earlier peak near $1.3567.

The Pound (GBP) started Tuesday on a firm footing against the US Dollar, extending Monday’s gains as investors continued to react positively to comments from Prime Minister Keir Starmer signalling a more pragmatic approach to relations with the EU single market.

Markets have interpreted the remarks as potentially supportive for longer-term UK investment and growth prospects, helping Sterling hover close to recent highs in early trade.

However, the Pound struggled to sustain its momentum. After an initial bout of profit-taking, GBP came under further pressure when the UK’s final services PMI for December was revised lower. The index was cut from the flash estimate of 52.1 to 51.4, tempering optimism around the strength of the UK’s dominant services sector.

The downgrade revived concerns that domestic economic momentum remains fragile heading into 2026, prompting Sterling to give up some of its earlier gains.

The US Dollar (USD), meanwhile, showed tentative signs of stabilisation on Tuesday as some investors moved to buy the currency at lower levels.

Even so, gains in the ‘Greenback’ were limited by an unsettled market backdrop. Heightened geopolitical tensions continued to weigh on sentiment, while resilient equity markets blunted demand for traditional safe-haven assets, leaving the US Dollar without a clear directional driver.

GBP/USD Forecast: Soft US Data to Pressure the Dollar?

Looking ahead, attention on Wednesday turns to a busy run of US economic releases which could inject fresh volatility into the Pound to US Dollar exchange rate.

The session begins with December’s ADP employment report, where private sector job growth is expected to have picked up only modestly, with forecasts centred around a 45,000 increase. Such a subdued figure would reinforce concerns that the US labour market is losing momentum, potentially weighing on the US Dollar.

Further pressure on USD could follow if additional releases disappoint. US factory orders are expected to contract, job openings are forecast to decline, and the ISM services PMI for December is tipped to show a slowdown in activity. A run of softer outcomes would likely revive selling pressure on the ‘Greenback’.

On the UK side, the data calendar is notably thin midweek, leaving Sterling largely at the mercy of US developments and broader shifts in risk appetite. A risk-on mood may favour the increasingly risk-sensitive Pound, while any deterioration in sentiment could allow the US Dollar to regain some ground.

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TAGS: Pound Dollar Forecasts