GBP/USD climbed to around 1.3520 in early Asian trading on Monday as the US Dollar weakened. The move comes amid fresh uncertainty over US tariffs. Traders are now focused on the US Producer Price Index (PPI) for January, due on Friday.
On Friday, the US Supreme Court ruled that Trump’s tariffs were illegal and beyond his authority. Trump then imposed a blanket 15% levy on imports. Reuters reported that these replacement tariffs will last for 150 days.
Tariff Uncertainty Weighs On Dollar
Reuters also said it is still unclear whether the US must refund importers for duties already paid, because the court did not address that issue. GBP/USD fell last week, breaking out of a consolidation range and returning to levels last seen in late January.
The pair dipped below 1.3450 as the Dollar strengthened during the week. Moves in sterling were tied to different policy expectations for the Bank of England (BoE) versus the US Federal Reserve (Fed).
UK jobs and inflation data reinforced expectations of a BoE rate cut next month. ONS data showed unemployment rose to 5.2% in the last three months of 2025. Average pay growth slowed to 4.2%, down from a revised 4.4% in the three months to November.
The rebound in GBP/USD toward 1.3520 appears to be driven by confusion over the new 15% US import levy. This tariff uncertainty is creating near-term selling pressure on the US Dollar. However, we see this as a possible chance to position for the pound’s underlying weakness.
Fed Boe Policy Divergence
At the end of 2025, the UK jobs report showed unemployment at a five-year high of 5.2% and slower wage growth. This weak data, along with the UK entering a technical recession in the second half of 2025, points to a BoE rate cut next month. That backdrop makes long pound positions fundamentally risky.
In contrast, the Federal Reserve faces sticky inflation. Recent data showed January’s Consumer Price Index (CPI) at 3.1%, which is still well above the Fed’s 2% target. This gap—BoE easing while the Fed stays on hold—should support the dollar against the pound over the medium term.
With these forces pulling in opposite directions, volatility is likely to rise. Options markets are already reflecting this. One-month implied volatility for GBP/USD has jumped above 9%, up from the 6% area last month. Buying GBP/USD put options may be a sensible way to gain downside exposure while limiting risk ahead of Friday’s US PPI release.
We saw similar tariff-driven volatility in 2018 and 2019, which often produced sharp and unpredictable swings. That kind of price action can make outright short positions risky, which strengthens the case for using options. Traders could look at bearish option structures, such as a put spread, to reduce the cost while targeting a move back toward the 1.3400 level.
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