GBP/USD is strengthening around 1.3510 during Tuesday’s Asian session. The Pound Sterling benefits from expectations that the Bank of England (BoE) will gradually ease rates in 2026. There is resistance near 1.3550, while initial support is at 1.3410. In December, the BoE lowered its interest rate by 25 basis points to 3.75%. Traders expect further cuts, with nearly a 50% chance of another decrease by the year’s end. Similarly, the Federal Reserve is expected to lower rates in 2026. Trading activity is lighter as the New Year approaches.

Bullish Profile

GBP/USD is above the 100-day EMA at 1.3335, maintaining a bullish outlook. The RSI is close to an overbought level at 69.87, with the upper Bollinger Band at 1.3550 providing resistance. Support is found at the 20-day middle band at 1.3410. The Pound Sterling is the official currency of the UK and is the fourth most traded currency worldwide. Changes in the BoE’s monetary policy, particularly interest rates, significantly impact the GBP’s value. Economic indicators, such as GDP and trade balances, also play a significant role. A positive trade balance usually strengthens a currency. The market currently favors the Pound due to the BoE’s careful approach to reducing rates. Recent data shows UK inflation at 2.8% in November 2025, which makes the BoE cautious. This measured strategy makes the Pound more appealing compared to currencies with more aggressive central banks. In the United States, the Federal Reserve is also easing policy. The latest core PCE inflation has dipped to 2.4%, leading traders to expect quicker rate cuts from the Fed in 2026. This difference in policy approaches is pushing GBP/USD toward the resistance level at 1.3550.

Derivatives Trading Strategy

For derivatives traders, it may be wise to take a cautiously bullish approach as we head into January 2026. Given the high RSI, buying call options with a strike price above 1.3550 could be beneficial if a breakout occurs. Additionally, selling cash-secured puts around the 1.3410 support level could help collect premium. With holiday trading being thinner, we should be ready for sharp price movements, making defined-risk options preferable. The current environment contrasts sharply with the aggressive rate hikes of 2022-2023, which caused significant volatility. The central banks’ gradual approach now reflects lessons learned and aims for a soft economic landing. The Q3 2025 GDP growth was confirmed at a modest 0.2%. This steady pace is likely to prevent the wild swings in GBP/USD experienced a few years ago, favoring strategies that benefit from a consistent upward trend. Create your live VT Markets account and start trading now.

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