GBP/USD has regained traction, climbing above the mid-1.2600s, approaching a two-month peak reached on Friday. This increase is supported by a decline in the US Dollar, which has dropped to a two-month low due to concerns surrounding US consumer health.

The USD Index (DXY) hit its lowest level since December 10, influenced by a poor sales forecast from Walmart and uncertainties related to US President Donald Trump’s tariffs. In contrast, the British Pound benefits from positive UK Retail Sales, which rose by 1.7% MoM in January, and an unexpected increase in UK Services PMI to 51.1 for February.

Despite the Bank of England’s pessimistic outlook, GBP/USD remains largely influenced by USD dynamics. With no major economic releases expected, the overall scenario suggests potential for continued upward movement in spot prices.

The pound’s recent momentum has been largely driven by external factors rather than domestic strength. While the modest improvements in UK data have provided some support, the primary driver remains the dollar’s weakness. This has given sterling an opportunity to push higher, even as the Bank of England remains cautious about the economic outlook.

The dollar’s troubles have been compounded by disappointing forecasts from major US retailers, raising concerns about consumer spending. On top of that, uncertainty around Washington’s trade policies has added further strain. This combination has pulled the greenback down to its lowest in two months, allowing the pound to capitalise on the shift.

Given that no major data releases are scheduled in the immediate term, the market’s attention stays firmly on wider currency trends. With traders already reacting to recent UK economic figures, attention now shifts towards US developments, particularly around inflation and economic resilience.

The recovery in the pound looks promising, but it is still subject to broader market movements. If sentiment around the US economy weakens further, the current trajectory could continue. On the other hand, any hints of resilience from across the Atlantic—whether in jobs data, inflation readings, or central bank commentary—could slow or even reverse recent gains.

For those watching price action closely, the mid-1.2600s remains a key level after last week’s highs. A sustained break above could encourage further buying interest, while any retracement may test support zones established during previous pullbacks. The absence of major UK catalysts means sterling’s next moves depend largely on whether the dollar finds its footing again.