The GBP/USD pair has increased as the US Dollar has fallen, partly due to concerns about the Federal Reserve’s independence. Even with strong US Producer Price Index (PPI) and Retail Sales data, the dollar’s performance has been overshadowed by political uncertainty. Currently, markets expect the Federal Reserve to keep interest rates steady in January, with possible rate cuts later this year. The US Dollar Index slipped by 0.20% to 98.97, while the GBP/USD rose by 0.30%, landing at 1.3461.

US Financial Indicators

In the US, the PPI beat expectations, rising to 3% in November from 2.8% in October. Retail Sales were also better than forecast, increasing by 0.6% month-on-month. There is a 95% chance that the Federal Reserve will keep rates unchanged. In the UK, there’s limited financial news as we await GDP data. The Bank of England hinted that policy normalization might happen soon. The GBP/USD’s outlook is neutral; it needs to surpass 1.3494 to continue rising. The Pound Sterling is performing well against major currencies, especially the Japanese Yen. A table and heat map provide more details on currency performance. Back in late 2025, the US Dollar weakened considerably due to political pressure on the Federal Reserve, despite strong economic indicators like producer inflation and retail sales. The market correctly predicted that this pressure would keep interest rates steady during this period.

Current Economic Conditions

Today, the situation remains tense. The Fed has just confirmed they will hold rates steady, as expected. Recent data from early January showed that US inflation for December 2025 eased to 2.9%, supporting market expectations for rate cuts later this year. The latest jobs report added a solid but modest 180,000 jobs, giving the Fed little reason to change their cautious stance. On the other hand, the UK economy seems more stable, with fourth-quarter 2025 GDP showing modest growth and avoiding recession. UK inflation is sticky at 2.5%, putting pressure on the Bank of England to keep rates higher for longer. This continues the divergence in policies between the US and the UK seen last year. For those trading derivatives, this environment indicates that the GBP/USD pair could remain strong. Consider buying call options with strike prices above the previous 1.3500 resistance level, aiming for the 1.3567 high from last year. February and March expiration dates are good for taking advantage of this expected increase. However, we must stay alert for any signs of a reversal, as US political tensions could unexpectedly ease. Protecting investments with put options at a strike price below the 1.3400 level could be a wise strategy against a sudden US Dollar rebound. This level is crucial because it aligns with the 200-day moving average we monitored back in 2025. Create your live VT Markets account and start trading now.

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