Pound Sterling is holding steady against the US Dollar, trading around 1.36, just below its January 2022 peak. The recent increase in the pound’s value is linked to changes in central bank policies, especially a 15 basis point improvement in the UK-US yield spread that benefits the pound.

US Data Impact

This week, limited economic data from the UK makes the pound more sensitive to US data. GBP/USD risk reversals show a slight advantage for puts, affected by tensions in the Middle East. The pound’s upward trend continues, exhibiting higher lows and highs since January. Current movements bring the pound close to January 2022 levels, with the RSI suggesting potential momentum growth, facing resistance around 1.3750. Statements about future performance come with uncertainties and risks. Market profiles are for informational purposes and should not be seen as buy/sell recommendations. It’s important to do thorough research before making investment decisions. The markets carry risks, including emotional stress. The authors’ views do not reflect official stances, and they bear no responsibility for content linked externally. The article is unaffected by positions or compensations. Errors and omissions are accepted, and this information does not constitute investment advice. Currently, the GBP/USD pair shows stability around the 1.36 mark, near its early-2022 peak. The recent increase in value relates to a modest movement in interest rate differences, particularly in UK bonds compared to US bonds. While a 15 basis point shift may seem small, it can impact derivative pricing and positioning in a short time frame. This week lacks significant domestic economic data, so we are more reliant on signals from the US. Any unexpected changes in inflation or job data could shift the market and potentially pull the pound out of its current range. Slight downward skew in risk reversals suggests a small hedge is forming, driven by geopolitical uncertainties—these factors are not drastically altering momentum but may affect event-driven movements.

Technical Indicators

From a technical standpoint, the current setup encourages trend continuation. The price has been moving in a pattern of higher lows and higher highs, which indicates bullish sentiment. The Relative Strength Index (RSI), a common momentum tool, hasn’t reached overbought levels yet, leaving space for growth. Resistance doesn’t seem close until we reach the 1.3750 area. With GBP/USD in this range, short-term volatility seems low, and unless significant market-changing news occurs—like unexpected data or policy announcements—it appears traders are extending their outlooks. The lack of immediate domestic stress likely means that US economic indicators will significantly influence future volatility and positioning changes. For those managing delta or gamma, this is a chance to reassess open spreads and think about convexity exposures. Options with longer expiries, especially those tied to the next central bank cycle, could see increased volume if discussions about policy divergence pick up. Pay attention to skews, particularly in the 25-delta range. If dealers start adjusting their positions in anticipation of bond market shifts, it might push the pair out of its calm range faster than expected. In practical terms, it’s wise to focus on US data releases before making new delta commitments. Other currency pairs involving the pound are also worth considering, as not all pound movements are linked to the dollar. However, with implied volatility still relatively low and areas of steepening observed on the options surface, it doesn’t take much to revive short volatility from its recent lull. It’s important to keep an eye on where vega exposure lies, especially during weeks of thin liquidity. Create your live VT Markets account and start trading now.

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