The Pound Sterling (GBP) increased by 0.3% against the US Dollar (USD), but it still lags behind other G10 currencies, outperforming only the Australian Dollar (AUD) and Japanese Yen (JPY). Recent labor market data was mixed. Wage growth met expectations and employment rose more than expected, but there was a larger than anticipated drop in monthly payroll changes. In short-term interest rate markets, there’s been a significant shift in rate expectations, leading to fewer anticipated rate cuts for 2026. The market now expects about 40 basis points of easing from the Bank of England, down from the earlier expectation of 50 basis points. The GBP is closely linked to risk reversals, showing the influence of market sentiment.

Financial Reports This Week

This week is packed with financial reports, including Consumer Price Index (CPI) data available on Wednesday. We will also see public finance figures on Thursday, followed by retail sales and preliminary Purchasing Managers’ Index (PMI) data on Friday. Please remember that the information provided is general and not investment advice, carrying significant risks. The Pound is rising against the dollar, but it’s still not performing as well as other major currencies. Traders are less confident about the number of rate cuts from the Bank of England, reducing expectations from 50 basis points to just 40 for the rest of 2026. This change in sentiment is currently a key factor affecting the Sterling. Inflation data coming out on Wednesday is the main event for the week, especially after the mixed jobs report. If the Consumer Prices Index (CPI) remains stubbornly above 3% through late 2025, any surprising rise could push rate cut expectations even further into the future. This makes the market very sensitive to the CPI release. Given this uncertainty, traders should consider options to manage risk around these data releases. Last year, the Pound experienced sharp movements around the Bank meetings, where one-month implied volatility for GBP/USD surged over 10% in November 2025. Buying call options on the Pound might be a strategy to prepare for a hawkish surprise while keeping initial costs limited.

Critical Economic Indicators

Aside from inflation, the retail sales and PMI figures released on Friday will also be crucial. After a surprising 0.4% drop in retail sales in November 2025, another weak report could weaken the Pound’s recent gains, regardless of the inflation data. These numbers will help us understand how well the UK consumer is holding up. Create your live VT Markets account and start trading now.

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