The Pound Sterling dropped below 1.3450 during Friday’s London session, influenced by the latest UK manufacturing PMI data. Even though it turned negative on the daily chart, the GBP/USD pair remained above 1.3400 within its weekly range. The pair made a slight recovery to about 1.3470 in early Asian trading, but technical analysis indicated weaker bullish momentum. GBP/USD then moved toward 1.3480, supported by expectations of rate cuts from the US Federal Reserve.

Market Sentiment and Currency Trends

Market sentiment negatively affected the US Dollar against the Pound, with more insights anticipated from Philadelphia Fed President Anna Paulson’s upcoming speech. The broader market outlook for 2026 appears optimistic, building on supportive measures taken in 2025. In other currency trends, EUR/USD reached 1.1750, and GBP/USD climbed modestly towards 1.3490. Commodity movements showed gold stabilizing around $4,320, while Cardano experienced bullish interest, trading above $0.36. These shifts illustrate connections between currency, commodity, and digital asset markets. Currently, the Pound is finding support around the 1.3450 level after a slight dip due to lower UK manufacturing data. However, this move is minor compared to the larger trend of diverging policies between the US Federal Reserve and the Bank of England. This difference will likely guide currency traders in the upcoming weeks. Expectations for the Fed to lower rates are putting downward pressure on the US Dollar, a sentiment that gained traction in late 2025. This was supported by December 2025 US inflation data, which showed a cooling trend, with the headline CPI falling to 2.8%. As a result, markets are pricing in at least two rate cuts from the Fed before the end of the second quarter.

UK Inflation and Economic Outlook

In the UK, the situation is different, as inflation has remained stubbornly high, with final 2025 readings showing it at 3.5%. The Bank of England has taken a cautious approach, indicating a gradual and data-driven policy path. This relative strength in UK interest rate expectations helps support the GBP/USD pair. For derivative traders, this environment suggests strategies that benefit from a stronger Pound against the Dollar while hedging against short-term weaknesses. Buying GBP/USD call options set to expire in late February or March could capitalize on a potential increase as policy differences become clearer. The current market volatility may underestimate the likelihood of a significant breakout. The overall economic outlook for 2026 appears promising, supported by the resilience shown throughout 2025. A strong economic performance and positive investor sentiment typically weaken the safe-haven US Dollar, providing a favorable backdrop for currencies like Sterling. However, we should remain cautious about the volatility experienced in 2025. The last time we saw a similar scenario with Fed and BoE policies in early 2024, the pair surged significantly before hitting strong resistance. Traders should keep an eye on the 1.3550 level as the next crucial technical challenge. Create your live VT Markets account and start trading now.

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