UOB Group Forex Analysis

UOB Group’s Forex analysts believe the GBP may test 1.3355, with 1.3315 as the next support level, which is not expected to break soon. However, the long-term outlook for the GBP is negative, indicating possible declines to 1.3355 and 1.3315. On Friday, the Pound Sterling is weak against the US Dollar, hovering near a four-week low of about 1.3360 during the European session. The US Dollar remains strong, fueled by expectations that the Federal Reserve will pause its monetary-easing efforts in the upcoming meeting, with the US Dollar Index staying near a six-week high of 99.50 reached on Thursday. Looking back to this time in 2025, the Pound Sterling was struggling to stay above 1.3400 against a strong US dollar. The outlook was negative, focusing on possible declines toward the 1.3315 support level due to solid US economic data and expectations that the Federal Reserve would keep rates steady. A lot has changed in the past year. Now, we see a different situation, with recent US data showing a slowdown, while UK inflation remains a major concern for the Bank of England. The latest UK Consumer Price Index data for December 2025 came in at 3.1%, higher than expected, putting pressure on the central bank to maintain its tough stance.

Trading Strategies For Changing Economies

This difference in economic outlook suggests that traders should rethink their bearish positions on the pound. The US labor market has softened, with the last Non-Farm Payrolls report of 2025 showing job creation below 150,000. This fuels speculation about possible Federal Reserve rate cuts in the first half of this year, making put options on GBP/USD riskier than they were a year ago. In this environment, derivative traders should consider strategies that could benefit from potential pound strength or increased volatility. Buying call options on GBP/USD may capture upside movement if the Bank of England takes a more aggressive approach than the Fed. This sentiment is a reversal of what we observed in early 2025. Another strategy is to use options to trade on the anticipated increase in price swings as central bank policies diverge. With the Federal Reserve hinting at a possible shift and the Bank of England maintaining its stance, implied volatility in this pair has reached its highest level in three months. Strategies like long straddles could become profitable, as they benefit from significant price movements in either direction. Create your live VT Markets account and start trading now.

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