The Pound Sterling had a strong start to the week against North American currencies, spurred by positive UK economic data, including the PMI and Retail Sales numbers. The UK Composite PMI for January hit 53.9, exceeding expectations of 51.7 and previous levels of 51.4. Although GBP/USD fell slightly from its highest point since September 2024, it still showed modest gains, remaining above the mid-1.3600s. This rise came as the US Dollar dipped to a four-month low, affected by uncertainties in global politics and a decline in US influence.

Legal And Financial Market Risks

The information below discusses legal and financial market risks. It is meant to be informative, not as investment advice. Individual investors are responsible for any risks, losses, or costs related to their investment decisions. Also, FXStreet and its authors do not provide personalized investment advice or guarantee the accuracy, completeness, or timeliness of the information. The recent strength of the Pound Sterling signals robust UK economic data. With the UK Composite PMI at 53.9, this strong performance indicates the economic growth observed in 2025 is picking up speed. This puts pressure on the Bank of England to stay firm on interest rates, especially compared to the Federal Reserve’s expected policies. For those considering opportunities, purchasing call options on GBP/USD with strike prices above 1.3700 in the coming weeks could be beneficial. This strategy allows for potential profits from price increases while limiting losses to the premium paid. Given the DXY’s drop to a four-month low, now below 101.50, the trend is clearly against the US Dollar.

Interest Rate Differential

Reflecting on the high inflation seen in 2024 and 2025, strong economic activity may slow the Bank of England’s pace in cutting rates compared to the Fed. The interest rate differential is important since the UK’s base rate has been over 50 basis points higher than the Fed funds rate for the last two quarters. This yield advantage continues to draw investment towards Sterling-related assets. Another option is to consider volatility ahead of the Federal Reserve’s policy announcement this week. Selling out-of-the-money GBP/USD put options could be a smart way to earn premiums, betting that the pair will not decline sharply below key support levels like 1.3550. This strategy takes advantage of both the upward trend and the potential decline in volatility after the Fed’s decision. Create your live VT Markets account and start trading now.

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