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Pound Weakens Against Dollar After US Senate Deal

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  Published in Politics and Government on Friday, January 30th 2026 at 19:11 GMT by FXStreet
      Locales: UNITED STATES, UNITED KINGDOM

London, UK - January 31st, 2026 - The British Pound is currently experiencing weakening against the US Dollar, driven by a breakthrough in the US Senate that has bolstered the greenback and prompted a shift towards risk aversion in the foreign exchange markets. The GBP/USD pair is trading around 1.2750 as of this morning, a notable decline from its daily high of 1.2785. This movement isn't merely a temporary fluctuation; it's indicative of a broader trend reflecting growing optimism regarding the US economic outlook and the anticipated path of US monetary policy.

For weeks, the US Senate has been locked in negotiations regarding a key economic package - initially focused on infrastructure spending, but evolving to include provisions on energy policy and potential tax adjustments. Reports emerging late yesterday confirmed a bipartisan agreement, clearing a major hurdle that had been weighing on investor confidence. This agreement, while details are still being scrutinized, appears to prioritize fiscal responsibility alongside strategic investments, appealing to a wider range of political viewpoints. The resulting certainty has immediately translated into dollar strength.

Analysts point to a confluence of factors contributing to the GBP/USD decline. The improving US economic data released throughout January, including surprisingly robust jobs numbers and a stabilizing inflation rate (hovering around 2.2% - still above the Federal Reserve's target of 2%, but trending downwards), have laid the groundwork for a more hawkish Federal Reserve. Market expectations are now shifting towards a potential interest rate hike during the March meeting, rather than a continuation of the 'wait-and-see' approach previously signaled. Higher US interest rates naturally attract foreign investment, increasing demand for the dollar and driving up its value.

"The Senate agreement acted as a catalyst," explains Dr. Eleanor Vance, Senior Currency Analyst at Global Finance Partners. "The market was already leaning towards a stronger dollar, based on the improving US economic narrative. The removal of political uncertainty simply accelerated that movement. Investors are now pricing in the likelihood of the Fed tightening monetary policy sooner rather than later."

On the other side of the Atlantic, the Bank of England (BoE) remains a key focus for currency traders. While the UK economy has shown signs of resilience, recent data has been mixed. Concerns remain about persistent inflationary pressures, particularly in the services sector, and the potential impact of Brexit on long-term economic growth. Unlike the US, where expectations for rate hikes are growing, the BoE is largely expected to maintain its current policy stance - holding interest rates steady at 5.25% - until there is a clear indication that inflation is sustainably falling towards its 2% target.

This divergence in monetary policy between the US and the UK is a significant driver of the GBP/USD weakness. Investors are increasingly favoring the dollar, perceived as a safer and potentially more rewarding asset. The lack of clear positive signals from the BoE further exacerbates the situation.

From a technical perspective, analysts are watching key support and resistance levels. Currently, support is identified around 1.2730, with a potential for further declines if this level is breached. A break below 1.2730 could open the door to a test of the 1.2700 level, and potentially even lower. Conversely, resistance is currently seen at 1.2810. A sustained move above this level would suggest a potential rebound, but would require a significant shift in market sentiment. However, given the current momentum, such a rebound appears increasingly unlikely in the short term.

Looking Ahead:

Investors will be closely monitoring upcoming economic data releases from both the US and the UK. The next key indicators to watch include the US ISM Manufacturing PMI and the UK Services PMI, both due out next week. Any further positive surprises from the US economy could further strengthen the dollar, while disappointing data from the UK could put additional pressure on the pound. The minutes from the latest Federal Reserve and Bank of England meetings will also be scrutinised for clues about future policy intentions. The risk aversion sentiment, spurred by global geopolitical uncertainties - particularly ongoing tensions in Eastern Europe and the South China Sea - also favors the dollar as a safe haven asset.