GBP/USD traded at 1.3660 after slipping below 1.3700. It was down 0.2% in Tuesday’s North American session. The pair earlier reached a daily high of 1.3700 before pulling back.
US data missed expectations, but the Dollar still recovered from earlier losses. December Retail Sales were flat (0.0% month-on-month) versus a 0.4% forecast. The Control Group fell -0.1% MoM after a 0.2% rise in November.
Us Labour Costs And Inflation Signals
The Employment Cost Index eased to 0.7% in Q4 from 0.8%, according to the BLS. Traders watch this report as a signal for labour costs and a key input into core inflation trends.
In the UK, political uncertainty limited Sterling’s gains. Pressure on Prime Minister Keir Starmer increased after the nomination of Peter Mandelson as ambassador to the US. Some speculation suggests Starmer may not finish the year as Prime Minister, while still remaining Labour leader.
On the technical side, GBP/USD stayed range-bound. The 1.3650 to 1.3700 area remained the key zone ahead of Wednesday’s US Nonfarm Payrolls. A break above the yearly high at 1.3868 could open the way to 1.4000. A drop below 1.3650 could expose 1.3508 and the 50-day SMA at 1.3471.
In 2025, political jitters kept GBP/USD capped below 1.3700, even when US data was weak. Today, the picture is different. Markets are more focused on stubborn inflation than on last year’s political headlines. With GBP/USD now near 1.2750, those old levels matter far less.
How The Backdrop Has Changed
Last year, weak US retail sales and a softer Employment Cost Index pointed to slowing momentum. Now, January 2026 US CPI is still running at 3.1%, keeping the Federal Reserve on alert. Unlike 2025, any sign of US strength could increase expectations that the Fed will keep rates higher for longer.
In 2025, concern about the Prime Minister’s leadership drove sentiment. Now, attention is focused on the Bank of England. UK inflation remains sticky at 3.5%, well above the 2% target, which keeps the BoE leaning hawkish. This shift makes inflation, not politics, the larger driver for Sterling.
With both central banks in a holding pattern, implied volatility in GBP/USD has fallen. CME’s CVOL readings are down from their late-2025 peaks. Over the next few weeks, this can favour strategies such as selling strangles or straddles to collect premium, based on the view that the pair stays range-bound. This fits the current consolidation, rather than the breakout risk that traders watched last year.
The tight 1.3650–1.3700 range from 2025 has been replaced by a new battlefield, likely between 1.2700 and 1.2800. One approach is to use limit orders to fade moves near the edges of this lower range. A break below 1.2700 could point to a larger decline, especially if upcoming US payrolls data comes in stronger than expected.
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