Sterling Pulls Back From Three-Month Peak Against U.S. Dollar Amid Geopolitical Turmoil

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Geopolitics Fuels Choppy Dollar Trading

GBP/USD traded with heavy volatility last week. Rising geopolitical risks unsettled global markets and drove fast shifts in sentiment.

In particular, the U.S. Dollar showed unstable price action. Investors reacted to several U.S.-led geopolitical developments. Early in the week, risk appetite weakened after a U.S. raid in Venezuela and the capture of President Nicolás Maduro.

At first, markets treated the event as a classic safe-haven trigger. However, concerns soon grew over longer-term political and security risks in the region. As a result, Dollar flows turned uneven and unpredictable.

Later, market nerves rose further after comments from the White House. President Donald Trump repeated claims that the U.S. “needs” Greenland and suggested force remained an option. These remarks added political risk and kept the Dollar under pressure.

Mixed U.S. Labor Data Adds to Currency Uncertainty

At the same time, U.S. labor data failed to give traders clear direction. December non-farm payrolls rose by only about 50,000 jobs. This missed expectations and pointed to softer hiring momentum.

However, unemployment unexpectedly fell. That mixed signal complicated the outlook. Even so, markets made few changes to expectations for future Federal Reserve rate cuts.

Together, geopolitical tension and unclear data left the Dollar without a clear trend. As a result, volatility remained high across major pairs, including GBP/USD.

Sterling Starts Strong on Political Signals, Then Falters on Data

Meanwhile, the Pound began the week on a firm note. Traders welcomed comments from U.K. Prime Minister Keir Starmer. He hinted at closer alignment with the EU single market.

Initially, hopes grew that stronger trade ties could support the U.K. economy. However, that optimism faded quickly. A downgrade to December services growth weighed on confidence.

With few major U.K. data releases left, Sterling drifted. Consequently, GBP/USD became more sensitive to U.S. news and global risk sentiment.

Outlook for GBP/USD: Inflation and Growth Data in Focus

Looking ahead, attention turns to U.S. inflation data due Tuesday. If CPI shows further cooling, markets may price in faster Federal Reserve rate cuts. That outcome could weaken the Dollar.

Still, any Dollar softness may prove limited. Ongoing geopolitical risks could continue to support safe-haven demand.

For Sterling, the near-term outlook looks less supportive. Investors will closely watch upcoming U.K. GDP figures. If output remains weak, expectations for Bank of England easing may rise. In that case, the Pound could face renewed pressure against the Dollar.