GBP/USD stays steady around 1.3450 as traders remain cautious ahead of UK labor market data. The pair is trading near 1.3430 during Asian hours after some modest gains in the previous session. The ILO Unemployment Rate is expected to drop to 5% from 5.1%, and Average Earnings Including Bonuses are likely to slow to 4.6%. Traders are also looking ahead to the UK Consumer Price Index and Retail Sales data for December.

US Tariff Tension

The US Dollar is facing uncertainty due to tensions over tariffs on eight European countries, set to begin on February 1. In retaliation, EU ambassadors are preparing countermeasures. Recent US labor market data has pushed back expectations for Federal Reserve rate cuts until June. Morgan Stanley analysts now anticipate rate cuts in June and September, delaying their earlier forecasts. The Pound Sterling, the world’s oldest currency, is the UK’s official currency. It is widely traded, with GBP/USD making up 11% of foreign exchange transactions. The Bank of England’s policy to maintain a 2% inflation rate greatly influences the currency’s value. Economic indicators like GDP, PMIs, and employment numbers can affect the Pound’s direction, along with the Trade Balance, which impacts demand and investment.

Market Strategy Focus

As of January 20, 2026, GBP/USD is trading cautiously around 1.2750 while we await important UK inflation and labor data. This is similar to January 2025, when the pair was also holding steady before data releases, though at a higher level near 1.3450. For derivative traders, the main focus should be the possible policy divergence between the Bank of England and the US Federal Reserve. Looking back to early 2025, we expected the UK unemployment rate to fall to 5%. However, the latest data shows it holding steady at 4.2%. The real challenge now is high UK services inflation, which, according to late 2025 data, is at 4.5%. This complicates the Bank of England’s decisions. Options traders may want to consider straddles or strangles to prepare for potential volatility around the upcoming UK CPI release because a surprising figure could quickly change interest rate expectations. On the US dollar side, the market now sees a 60% chance of a Federal Reserve rate cut by June 2026. This contrasts with early 2025 when strong labor data kept pushing back rate cut expectations. The latest US Non-Farm Payroll report showed a modest gain of 175,000 jobs, indicating that the US economy might be cooling, which could put pressure on the dollar in the coming weeks. We should also remember the market fluctuations in January 2025 related to proposed US tariffs on European goods over the Greenland issue. That event caused a temporary spike in volatility but did not have a lasting effect, serving as a lesson. It underscores that while we should monitor geopolitical news, our main strategy should focus on economic fundamentals and central bank policies, which ultimately drive currency value. Create your live VT Markets account and start trading now.

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