GBP/USD Forecast: Pound Sterling Capped below $1.35 on Services PMI

Modified: Thursday, 8 January 2026 08:31 BST - Written by Tim Boyer

STORY LINK GBP/USD Forecast: Pound Sterling Capped below $1.35 on Services PMI

The Pound to US Dollar exchange rate (GBP/USD) drifted lower on Wednesday as investors reacted to a fresh batch of US economic releases and lingering geopolitical tensions.

At the time of writing, GBP/USD was trading near $1.3473, around 0.2% below the session’s opening levels and remaining capped below the $1.35 handle.

The US Dollar (USD) found modest support on Wednesday after stronger-than-expected data from the services sector.

December’s ISM services PMI jumped from 52.6 to 54.4, confounding forecasts for a slowdown and marking the fastest pace of expansion since October 2024. Survey respondents cited a seasonal lift in demand and firmer business activity ahead of the new year as key drivers of the improvement.

However, gains in the ‘Greenback’ were restrained by softer labour market signals. Data from the Bureau of Labor Statistics showed job openings falling to a one-year low of 7.1 million in November, reviving concerns that employment momentum is fading and reinforcing expectations that US interest rates will be cut multiple times this year.

The Pound (GBP), meanwhile, struggled to find clear direction as the absence of notable UK economic releases left Sterling exposed to wider market forces.

Sentiment remained cautious as geopolitical tensions intensified following renewed rhetoric from the White House regarding President Donald Trump’s desire to control Greenland, including suggestions that this could be pursued through military means.

The prospect of escalating tensions between NATO members unsettled investors, raising fresh doubts about alliance unity and the potential implications for European stability. This uneasy backdrop kept the increasingly risk-sensitive Pound on the defensive through the session.

GBP/USD Exchange Rate Forecast: Labour Market Data to Drive Direction

Looking ahead, upcoming US employment data is likely to be the primary driver of volatility in the Pound to US Dollar exchange rate through the remainder of the week.

Initial jobless claims due on Thursday could weigh on the US Dollar if they signal a further cooling in labour market conditions.

Attention will then turn to Friday’s non-farm payrolls report. Any indication that hiring remained subdued in December would likely strengthen expectations of additional US rate cuts and place more pronounced pressure on the ‘Greenback’.

With little of note on the UK economic calendar, Sterling is expected to continue taking its cues from global risk sentiment and developments across the Atlantic.

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TAGS: Pound Dollar Forecasts