The GBP/USD pair went up past 1.3500 because the US Dollar weakened. This drop was due to rising geopolitical tensions and disappointing economic numbers. The US ISM Manufacturing PMI has now shrunk for the tenth straight month, falling from 48.2 to 47.9, while forecasts expected it to stay at 48.3. The US Dollar’s decline is reflected in the US Dollar Index, which dipped by 0.03% to 98.39. Concerns about the US economy continue to grow, with the latest GDP showing a 4.3% annual growth for the third quarter. Neel Kashkari, the President of the Minneapolis Fed, commented that inflation is still too high.

Geopolitical Events and Market Impact

Recent geopolitical events, such as US actions in Venezuela, influenced currency markets over the weekend and somewhat supported the dollar in Asia and Europe. In the UK, interest rate cuts from the Bank of England are anticipated this year, with the market estimating cuts of 41.3 basis points. Looking ahead, there is little economic data expected from the UK, while the US will soon release critical indicators. Technical analysis suggests that GBP/USD may continue to rise beyond December’s peak. The accompanying table shows the percentage changes of major currencies compared to one another, highlighting the British Pound’s strength against the Canadian Dollar. With GBP/USD hovering around 1.3500, our focus shifts to the upcoming US Nonfarm Payrolls report. The recent rise was spurred by weak manufacturing data, but the labor market will truly test the US Dollar. We might consider using short-term options to prepare for potential volatility around this report. Throughout most of 2025, we noticed that a strong US labor market contrasted with a shrinking manufacturing sector. For example, the December 2023 ISM Manufacturing PMI fell to 47.4, marking fourteen months below 50, yet the NFP report indicated 216,000 new jobs added. This history suggests that the next payroll data could easily exceed expectations and challenge the dollar’s weakness.

Binary Risk and Strategies

This situation creates a clear binary risk for the NFP announcement later this week. Given the chance of a significant surprise, buying a GBP/USD straddle could be a good strategy to capitalize on a possible breakout in either direction. The high implied volatility reflects this uncertainty, but the actual movement may be even greater if the data deviates significantly from predictions. On the UK side, while markets are anticipating rate cuts, we must not forget how stubborn inflation was last year. UK’s CPI fell from its peak, but core inflation, which hit 5.1% in December 2023, remained well above the Bank of England’s 2% target. This will likely make the BoE cautious about signaling cuts, which could limit the pound’s weakening for now. Thus, the pound’s current strength above 1.3500 could offer a chance to create bearish-to-neutral positions. We might consider selling call options with a strike price above the recent 1.3550 high to collect premiums, betting that the BoE’s cautious outlook will limit any rally. This strategy would work well if the pair remains steady or drops below the key 1.3500 level. Lastly, the geopolitical situation in Venezuela reminds us that headline risk can quickly shift market sentiment. This incident caused a brief movement toward the safety of the US Dollar, and similar events could happen again unexpectedly. This uncertainty supports maintaining some long volatility positions or purchasing low-cost out-of-the-money puts on riskier currencies as a hedge in a portfolio. Create your live VT Markets account and start trading now.

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