The GBP/USD rate has risen to about 1.3660, its highest point since mid-September 2025. This increase comes from strong UK Retail Sales and Purchasing Managers Index (PMI) data that exceeded expectations.

State of UK Retail Sales

UK Retail Sales grew by 0.4% in December compared to November, which had seen a 0.1% decline. Core Retail Sales, excluding auto fuel, also increased by 0.3% in December, beating the predicted 0.2% drop. Additionally, the UK Composite PMI hit a 21-month high of 53.9 in December. Some analysts believe these positive results could postpone any planned rate cuts by the Bank of England. There’s an expectation of maintaining current rates at the February meeting, with a possible cut by June. The US Federal Reserve is likely to keep interest rates stable in its upcoming meeting, but traders will watch for comments from Chair Jerome Powell that could change market expectations. The Pound Sterling is the fourth most traded currency worldwide, with key pairs being GBP/USD. The Bank of England’s monetary policy aims for a 2% inflation rate, which greatly influences the Pound’s value. Economic data and trade balance also significantly affect the Pound’s strength. The increase in GBP/USD above 1.3650 was fueled by strong UK economic data from late 2025. December’s Retail Sales in the UK unexpectedly rose by 0.4%, contrary to predictions of a decline. This trend indicates that the UK economy may be more resilient than previously thought. After this period, the US Federal Reserve kept interest rates steady during its January meeting, but the commentary was seen as less dovish than expected, causing a pause in the pair’s rally. Recent US data showed a slight rise in Initial Jobless Claims to 218,000, suggesting a cooling labor market that supports a patient Fed when considering rate cuts.

Outlook and Strategy

Recent UK data revealed the Consumer Price Index (CPI) for December 2025 remained at 3.9%, against expectations of a drop to 3.7%. This steady inflation bolsters the belief that the Bank of England may be one of the last major central banks to lower rates. This policy difference is a key factor likely to support the Pound against the Dollar. In this context, consider positioning for further GBP strength while managing the risk of short-term dropbacks. One option is buying GBP/USD call options set to expire in March 2026 with a strike price around 1.3750. This offers a defined-risk way to tap into potential gains as the bullish trend may continue after the current consolidation. For a more cautious approach, you could implement a bull call spread by selling a call with a higher strike price, like 1.3900, while purchasing the 1.3750 call. This strategy reduces the initial trading cost but limits maximum profit, making it suitable for a steady upward move. Historically, similar policy divergences, seen between the Fed and ECB in 2022, can result in sustained, though modest, currency trends. Implied volatility is projected to rise as the Bank of England’s meeting in early February approaches. This makes selling premium, like in the bull call spread, more appealing now. Traders should closely watch volatility levels, as significant spikes could create better entry points for long-volatility strategies or signify greater market uncertainty. Create your live VT Markets account and start trading now.

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