The ILO Unemployment Rate is expected to drop slightly to 5% from 5.1%. Average Earnings, including bonuses, are projected to decrease to 4.6% from 4.7%. On Monday, GBP/USD rose slightly due to a weaker US Dollar, not because of strong performance from the Pound. Tensions flared when US President Donald Trump proposed buying Greenland, which met resistance from both the European Union and Greenland.

Trump Tariffs and European Response

In a controversial move, Trump threatened to impose a 10% tariff on exports to Europe starting February 1, with a potential increase to 25% by summer unless the EU agrees to cede a country to the US. This prompted immediate counter-threats from Europe, likely impacting several US industries. After Trump announced tariffs on eight European countries on social media, GBP/USD increased by 0.28% to 1.3414. The tariffs target countries like Denmark, the UK, and Germany, and could rise if no agreement is reached regarding Greenland. Reflecting on this time in 2025, we remember how geopolitical issues overshadowed economic data. The proposed tariffs over Greenland caused markets to adopt a risk-averse stance, even while we focused on UK labor statistics. With the pound trading near 1.3820, this serves as a reminder of how quickly market sentiment can change.

Lessons from the Greenland Crisis

A major lesson from the 2025 Greenland crisis was the surge in implied volatility. In the coming weeks, the CBOE British Pound Volatility Index (BPVIX) is around a six-month low of 8.5, making options relatively cheap. This creates a chance to buy protection against unexpected events, like renewed trade tensions between the US and EU over agricultural imports. Traders holding long positions in the pound should think about buying puts expiring in February as a cost-effective hedge. For those unsure of market direction but anticipating a significant move, a long straddle could be a good strategy. This is especially important ahead of next week’s crucial Bank of England meeting, where recent data shows UK inflation stubbornly holding at 3.1%, creating significant policy uncertainty. While the market in 2025 expected an unemployment rate near 5%, today’s figures show a tighter labor market with a rate of 4.2%. However, this hasn’t strengthened the pound due to ongoing worries about sluggish Q4 2025 growth. Any weakness in the upcoming retail sales report could push GBP/USD down to lower support levels, supporting defensive option positions. Create your live VT Markets account and start trading now.

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