The Pound Sterling (GBP) fell by 0.17% as the US Dollar (USD) rose for two days in a row. The current GBP/USD exchange rate is 1.3662, with a daily high of 1.3715. On Monday, the Pound began the week positively but later lost ground due to a stronger US Dollar, which benefited from political stability in the United States. The GBP/USD rate found temporary support around 1.3660, briefly rose above 1.3700, and then settled around 1.3670.

Traders Keep Watch on US Data

Traders are paying attention to the upcoming US ISM Manufacturing Purchasing Managers Index (PMI) data, expected later on Monday. The fast-paced market movements continue to favor the dollar, supported by strong US data. The US Dollar’s strength is the main topic, driven by a robust January ISM Manufacturing score of 58.5 and the White House’s nomination of Kevin Warsh to the Fed, suggesting a more aggressive approach to rate hikes. This has attracted investors towards USD assets. Additionally, a recent drop in gold prices from nearly $5,600 emphasizes this shift. For GBP/USD, the recent dip to 1.3660 suggests a continuation of the trend rather than a reversal. The gap between UK and US policies is widening, especially after last month’s UK inflation was slightly lower than expected at 3.1%. Buying put options on GBP/USD with strike prices below 1.3600 presents a clear strategy for those anticipating further declines. The sudden $1,000 drop in gold serves as a reminder that volatility has returned to the markets. Implied volatility on major currency pairs, including Sterling, has increased since the more stable period at the end of 2025. This makes options more expensive, but it also means that straddles could be a good strategy for those predicting larger movements from upcoming data releases.

Dollar’s Strength

This situation isn’t just about the weakness of the Pound; it highlights the overall strength of the dollar. The Euro struggles to stay above 1.1800, while the Yen has fallen below 155.50, showing that the dollar is currently dominant. Therefore, anyone holding long positions in Pound Sterling should heavily hedge against the dollar. Reflecting on the fourth quarter of 2025, the Bank of England indicated it might pause its rate hikes, in contrast to the Fed’s more aggressive stance. This divergence, which we noted at the time, is proving to be a key factor in the current market movement. With US 10-year yields nearing 5.25%, the most likely direction for GBP/USD is still downward. Create your live VT Markets account and start trading now.

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