FX Primer: Sterling ends the week near 4-month highs after strong PMI

Sterling ended the week at four-month highs against the under-pressure US dollar following some defiantly upbeat survey data indicating the UK economy kicked up a gear in January.

The move, capping a strong week for the pound, came after the latest S&P Global PMI chalked its best uptick in activity in almost two years, led by a robust and accelerated upturn in service sector activity.January data also signalled a sustained improvement in new order intakes across the private sector economy, which contributed to the most upbeat level of business optimism for 16 months. 

However, strong input cost inflation persisted, resulting in the largest increase in average prices charged by private sector firms since August 2025. This is a factor in the move in sterling as well, as it could see CPI inflation prove a little stickier. Nevertheless, we still see CPI coming down to the 2% level by the end of the year, supporting further bank rate cuts.

At 53.9 in January, up from 51.4 in December, the latest reading was the highest since April 2024 and signalled a robust rate of expansion. Service providers recorded a particularly strong upturn in business activity, with the rate of growth the fastest for 21 months. 

It looks as though post-Budget clarity saw the release of new projects and boosted investment spending. Manufacturing production increased modestly and higher output volumes at the fastest since October 2025. 

Meanwhile, the US manufacturing and services PMIs missed expectations in January, putting a little more pressure on the greenback, which has been hit hard this week by the Greenland debacle.

Eyes on who is the Fed chair pick too – it will have a big impact on the USD and gold, which could be about to break out past $5,000/oz.

As of pixel time, GBPUSD advanced past 1.3566, touching its best level since September at the 6 January peak at 1.35677 - looking for close above this to clear the path towards the September swing high above 1.370. We can spot a bullish crossover on the MACD indicator forming. If this move fails we may see a retest of the 200-day simple moving average around 1.3410.