The GBP/USD exchange rate is rising towards 1.3460 due to increased selling of US assets linked to trade tensions between the US and Europe. A sell-off of Japanese bonds is driving global yields up, putting pressure on the Dollar and causing high market volatility. Right now, GBP/USD is trading at 1.3463, which is a 0.30% increase. **Concerns about Japan’s Fiscal Situation** Worries about Japan’s fiscal situation, especially regarding tax cuts and spending plans, are increasing risk aversion. This has led to higher global bond yields and a weaker US Dollar. The US Dollar Index has dropped by 0.53% to 98.50 amid this ‘sell America’ trend. In the US, recent job data shows a small decrease in job creation, while UK data shows unemployment steady at 5.1%. Even though unemployment is stable, UK markets expect the Bank of England (BoE) to maintain interest rates at 3.75% but predict a cut by year-end. The British finance minister highlighted a need to ease Greenland issues. Technically, GBP/USD faces resistance at 1.3500, with levels to watch at 1.3550/75 and 1.3600. The Pound Sterling is significantly influenced by BoE monetary policy, economic data, and trade balance. Positive data and a strong trade balance boost the currency, while economic weaknesses can cause it to drop. Looking back to early 2025, a strong “Sell America” sentiment emerged due to trade tensions and instability in the Japanese bond market, causing volatility to spike and the US Dollar Index to fall to 98.50. Today, the situation has changed, with the CBOE Volatility Index (VIX) stable around 15, and the Dollar Index remaining above 104, indicating a shift in market confidence. Last year, GBP/USD was climbing toward 1.3500 as the Dollar weakened. Now, however, the pair struggles to stay above 1.2500, highlighting renewed focus on US economic strength. This change illustrates how quickly market sentiments can shift, with fears of a US slowdown in 2025 now replaced by a more positive outlook in early 2026. **Market Strategy and Risk Management** Markets had been predicting Bank of England rate cuts from 3.75% throughout 2025. These forecasts turned out to be too soon, as UK inflation has stayed stubbornly high, with December 2025 CPI data at 3.8%. As a result, the BoE base rate is now 4.5%, shifting the focus from when to cut rates to how long to maintain them. With volatility significantly lower than last year, selling options premium is a solid strategy. Traders should think about selling out-of-the-money calls during any rallies in GBP/USD, especially as it approaches the 1.2600 resistance level. This strategy takes advantage of the current range-bound price action and the decreasing value of options over time. The main risk now is a further downward move due to different central bank policies. The technical levels we monitored in 2025, like the 200-day moving average near 1.3400, are now long-term resistance. Traders should consider using put options to guard against a drop below the crucial 1.2450 support zone, which could lead to a sharp decline. Create your live VT Markets account and start trading now.

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