The GBP/USD currency pair has moved up slightly, hitting 1.3700. Market sentiment is mostly unfavorable toward the US Dollar, which helps the GBP. Investors are closely watching upcoming decisions from the Federal Reserve about interest rates. Currently, the market expects two small interest rate cuts by the end of the year. This contrasts with the Fed’s own predictions, which suggest one cut each year for the next two years.

The Pound Sterling

The Pound Sterling is the oldest currency in the world and is issued by the Bank of England. It ranks as the fourth most traded currency, representing 12% of global transactions, with an average volume of $630 billion a day. The Bank of England’s monetary policies significantly affect the Pound’s value. Economic stability and trade balance data influence its strength; stronger economic performance typically boosts the Pound. A positive Trade Balance increases demand for a country’s currency among foreign buyers. This content was partly written by Joshua Gibson, an Economics and Finance major experienced in trading. Please note that investing carries risks, and individuals should review information thoroughly before making financial decisions. GBP/USD is pushing toward the 1.37 mark, continuing the trend from late last year due to a weaker dollar. Recent data show UK inflation is steady at 4.0%, which is notably higher than the US rate of 3.4% from December 2025. This difference puts pressure on the Bank of England to keep rates higher for a longer period compared to the Fed. The market has a strong expectation for a dovish shift from the Federal Reserve, with fed funds futures indicating over a 70% chance of a rate cut by the June 2026 meeting. This outlook is a main reason for the dollar’s weakness. The uncertainty around who will be the next Fed Chair adds to this situation, as a new chair is likely to promote a more relaxed monetary policy.

Current Market Sentiment

In contrast to the Fed’s more relaxed outlook, the Bank of England is dealing with ongoing domestic price pressures. Last quarter’s wage growth data showed an annual increase of over 6%, keeping services inflation high. This difference in policy between the two central banks is a key factor driving the Pound’s strength in the medium term. While the pair shows overbought signals on technical charts, taking a long position carries the risk of a quick pullback. A smarter approach would be to use call options to take advantage of potential gains toward the psychological level of 1.40. Buying call options lets us limit our downside risk to the cost of the option while still being part of the strong upward trend. We should stay cautious, as the current market sentiment relies heavily on expectations of US policy changes and easing trade tensions. A surprise move from the Fed or new tariffs could quickly change the landscape. This might cause the dollar to strengthen and push GBP/USD back toward the 1.3400 support level seen in late 2025. Create your live VT Markets account and start trading now.

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