– Written by
Frank Davies
STORY LINK GBP/USD Price Forecast: Pound Sterling Lower as Dollar Firms Ahead of Davos
The Pound to US Dollar exchange rate (GBP/USD) drifted lower on Wednesday as traders positioned cautiously ahead of a closely watched speech from US President Donald Trump at the World Economic Forum in Davos.
At the time of writing, GBP/USD was changing hands near $1.3406, around 0.2% lower than at the start of the European session.
The US Dollar (USD) edged higher through midweek trading as investors adopted a more defensive stance ahead of Trump’s remarks.
The speech comes amid an increasingly combative tone from the US president over Greenland in recent days, with markets wary that he may use his Davos address to reiterate tariff threats aimed at European countries opposing a potential US purchase of the territory.
With uncertainty surrounding both the tone and substance of the speech, many investors favoured safer positioning, allowing the US Dollar to claw back some of the losses seen earlier in the week.
Meanwhile, the Pound (GBP) traded without clear direction despite UK inflation data surprising to the upside.
Figures from the Office for National Statistics showed headline CPI rose from 3.2% to 3.4% in December, exceeding forecasts. However, the reaction in Sterling was muted as measures of underlying inflation showed little change.
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Core CPI held steady at 3.2% at the end of 2025, while services inflation — a key focus for the Bank of England — remained unchanged at 4% for the fourth consecutive month. The stickiness of services prices reinforced the view that inflation pressures remain uneven.
With the data doing little to clarify the medium-term inflation outlook, markets concluded it was unlikely to shift the Bank of England’s stance ahead of February’s policy meeting, leaving the Pound confined to a narrow range.
GBP/USD Outlook: US Inflation and PMI Data in Focus
Looking ahead, movement in the Pound to US Dollar exchange rate on Thursday is likely to be driven by the release of the US core PCE price index.
As the Federal Reserve’s preferred inflation gauge, a softer reading could weigh on the US Dollar by reinforcing expectations of looser monetary policy later this year.
On the UK side, attention will turn to Friday’s services PMI. Preliminary January figures are expected to show only a modest improvement in activity, an outcome that may limit any late-week upside for Sterling.
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TAGS: Pound Dollar Forecasts
