The Pound Sterling is holding steady against the US Dollar, hovering around 1.3500. This stability comes despite weak construction PMI data, which hasn’t influenced the market. The overall trend is upward, but weakening momentum suggests the GBP/USD pair may soon stay within the 1.3450 to 1.3550 range. Recently, UK-US yield spreads have narrowed as momentum slows. The construction PMI index has dropped to a contractionary 40.1. With no upcoming speakers from the Bank of England, focus is on broader economic developments since there isn’t much domestic data to consider.

The Current Market Trend

Since early November, there’s been a clear bullish trend within a rising channel starting just above 1.3500. However, bullish momentum is fading as the RSI moves down from overbought levels near 70 to around 60. The 200-day moving average at 1.3388 is crucial, indicating that the pair may remain within 1.3450 to 1.3550. Last year, the pound consolidated tightly around 1.3500, with decreasing momentum suggesting a stall in the rally. This was in response to disappointing domestic data like the contractionary construction PMI figures from late 2025. Now, this calm period seems to be setting the stage for the next move. In the first week of 2026, economic data shows a split between the UK and the US. The latest UK inflation rate for December 2025 was 3.1%, which remains above the Bank of England’s target. Conversely, US CPI has eased to 2.8%, heightening expectations that the Federal Reserve may lower rates sooner than the BoE. This policy split is driving a breakout, with GBP/USD trading around 1.3720, well above last year’s range. Given this strong upward trend, traders might want to explore strategies that benefit from a continued rise in the pound. Buying call options is one way to gain exposure to potential gains while managing risks.

Market Volatility and Trading Strategies

Implied volatility for one-month GBP/USD options has risen to nearly 7%, indicating the market expects larger price swings. This makes strategies like bull call spreads appealing, as they can help reduce premium costs while still capturing upward movements. This environment is a stark contrast to the low-volatility phase of late 2025. We’ve seen this pattern before. For instance, in late 2020, a similar consolidation phase led to a significant rally in the pound. This historical context suggests that the current breakout might have lasting strength. Thus, seeing dips toward the previous resistance level of 1.3550 as buying opportunities could be a smart strategy. For traders using futures, the old 1.3550 resistance level should now be viewed as crucial support. Setting protective stop-loss orders just below this zone can help manage risk if the breakout falters. The focus now should be on capitalizing on this new upward trend instead of the range-bound conditions of last year. Create your live VT Markets account and start trading now.

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