The Pound Sterling (GBP) has risen by 0.5% against the US Dollar (USD), ranking behind only the New Zealand Dollar (NZD) and Swiss Franc (CHF) among G10 currencies. This increase appears to be driven by market sentiment, as there are no significant domestic data releases at the moment. The GBP/USD pair is targeting 1.35, with the possibility of climbing to 1.3789. Upcoming speeches from several Bank of England (BoE) officials, including Governor Bailey, are on the agenda. The recent narrowing of UK-US interest rate spreads has halted, and we expect trade and industrial production figures to be released on Thursday.

Technical Indicators and Market Sentiment

The recent rise of GBP shows solid support near the 200-day moving average at 1.3396. Momentum indicators show a neutral stance, with the Relative Strength Index (RSI) slightly above 50. In the short term, we could see gains approaching 1.35, potentially reaching 1.3789. We expect a trading range of 1.34 to 1.35 in the near future. Remember the strong sentiment that boosted Sterling in late 2025? Many traders aimed for the 1.35 level then. However, that bullish outlook has faded due to changing fundamentals, and the pair is currently closer to 1.3150. The optimism back then didn’t consider the economic slowdown we faced at the end of the year. This shift away from optimism occurred when UK inflation data for December 2025 unexpectedly cooled to 2.1%, lowering expectations for rate hikes. As a result, the Bank of England has indicated a more cautious, data-focused approach in its latest communications, limiting any significant gains for the Pound.

Market Volatility and Trading Strategies

In this uncertain environment, one-month implied volatility for GBP/USD has risen to 8.5%, higher than the average observed in the fourth quarter of 2025. This indicates that the market is anticipating more fluctuations before the next BoE meeting. For traders, this scenario makes option strategies that profit from price swings, like long straddles or strangles, appealing. The technical targets of 1.35 and 1.3789 that we previously monitored now seem far away and represent significant resistance. Given the current economic situation, selling out-of-the-money call options with strikes around 1.34 could be a sensible strategy to collect premium. This method bets that the recent dovish shift by the central bank will keep the pair from reaching last year’s highs in the coming weeks. Create your live VT Markets account and start trading now.

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