GBP/USD traded at 1.3632 on Thursday. It recovered after a volatile session driven by a stronger US dollar following US labour market data. US employment rose by 130,000 in January, the largest increase in more than a year, while the jobless rate fell to 4.3%.
Markets then adjusted expectations for Federal Reserve rate cuts. Traders now fully price the first cut for July rather than June. The chance of a move in March is seen at under 5%.
The pair rebounded from around 1.3600 after weaker UK data, but the recovery did not extend much further. UK GDP rose by 0.1% in October-to-December, matching the third quarter and coming in below the Bank of England’s 0.2% forecast.
That result increased expectations of a 25-basis-point cut as early as March. Sterling found some support as UK political tensions eased after Prime Minister Keir Starmer received backing from cabinet members and Labour MPs, avoiding an immediate leadership challenge.
An Elliott Wave analysis said a view published on 14 January, when the pair was at 1.3428, broadly played out. However, it noted the drop from 27 January to 6 February was larger than expected. This may point to an alternative wave count, although no rules were broken.
The strong January US jobs report has also shifted our view on the Fed’s timeline. With the CME FedWatch Tool now showing close to an 80% probability that the first cut is delayed until July, the dollar may stay firm. This is a clear change from last month, when markets still expected a spring move.
In contrast, the UK outlook looks weaker, which raises the odds of a Bank of England cut. Fourth-quarter 2025 GDP growth of 0.1%, along with recent inflation data showing headline CPI easing to 3.8%, strengthens the case for a move by May. This widening gap between a patient Fed and a more dovish BoE adds underlying pressure to GBP/USD.
For now, the pair is holding above the key 1.3600 level, helped in part by a temporary easing in UK political uncertainty. However, the technical picture is less clear. The sharp fall from late January to early February suggests the prior bullish trend may be running out of steam. This leaves the market sensitive to the next major data release, which could trigger a strong move.
With fundamentals pointing one way and technical support still holding, trading volatility may be the better approach. Buying straddles or strangles ahead of next week’s US and UK inflation reports could help capture a breakout in either direction, without needing to pick the direction in advance.
Traders who are already long may want to hedge. Buying put options with a strike just below the 1.3600 psychological support level could limit downside risk. A similar setup in 2024, driven by policy divergence, led to a quick breakdown once a key level failed, so protection against a repeat may be sensible.
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