Sterling Jumps to Best Week Against Dollar Since August After UK Data Boost | Jan 23, 2026

Sterling Rises to Best Weekly Performance Against Dollar Since August After Strong UK Data

The British pound strengthened sharply on Friday, posting its best weekly performance against the U.S. dollar since August 2025, after a series of stronger-than-expected UK economic data releases boosted investor confidence. The move highlights renewed optimism around the UK economy at the start of 2026, while the U.S. dollar showed signs of broader weakness in global currency markets.

By the end of Friday’s session, GBP/USD was trading near $1.3525, marking a weekly gain of around 1%, its strongest advance in nearly five months. The rally reflects growing expectations that the UK economy is stabilizing faster than previously anticipated, particularly in consumer spending and business activity.

The pound’s advance was primarily driven by encouraging domestic data. UK retail sales rose by 0.4% in December 2025, significantly outperforming forecasts that had pointed to a 0.1% decline. The unexpected increase suggests that British consumers remained resilient despite high interest rates and lingering cost-of-living pressures, providing a solid boost to economic sentiment.

Further supporting sterling was the latest business activity data. The S&P Global UK Composite Purchasing Managers’ Index (PMI) climbed to 53.9 in January, its highest level in 21 months. A reading above 50 indicates expansion, and the rise signals improving momentum across both the services and manufacturing sectors. Economists say this strengthens the case for modest economic growth in the first quarter of 2026.

Despite the upbeat data, challenges remain. Earlier in the week, UK labour market figures showed signs of cooling, with slower hiring activity and easing wage pressures. Inflation also remains a key concern, complicating the outlook for monetary policy and limiting how far optimism can extend in the near term.

Market participants currently expect the Bank of England to keep interest rates unchanged at its February 2026 meeting, as policymakers weigh the balance between easing inflation and supporting growth. Financial markets have already priced in the possibility of a 0.25 percentage point rate cut by mid-2026, a factor that continues to influence sterling’s movements.

The pound’s gains were also helped by a weaker U.S. dollar. The dollar index slipped during the week, as investors adopted a cautious stance amid uncertainty over the U.S. economic outlook, future Federal Reserve policy decisions, and ongoing geopolitical risks. Reduced demand for the greenback allowed major currencies, including sterling, to move higher.

Overall, market conditions on January 23, 2026 point to a short-term improvement in confidence toward the British currency. With GBP/USD holding near 1.3525, retail sales beating expectations, and business activity reaching multi-month highs, sterling has entered the new year on a stronger footing. However, analysts warn that upcoming inflation data and central bank guidance will be crucial in determining whether the pound can sustain its momentum in the weeks ahead.