New European Tariffs Proposed

EU ambassadors have come together to convince Trump not to put these tariffs into action. France is looking at possible countermeasures, focusing on how these tariffs might affect the US Dollar instead of European markets. Traders are waiting for UK employment and CPI data, which could sway the Bank of England’s monetary policy. If the results are weaker than expected, the GBP may drop against the USD. The Pound Sterling, the official currency of the UK, is the fourth most traded currency globally, making up 12% of all transactions, with a daily average of $630 billion. The value of GBP is influenced by economic indicators like GDP, PMIs, and employment figures. A strong economy draws in investments, which can lead to higher interest rates from the Bank of England, boosting the currency. A favorable trade balance also strengthens a currency, as it increases demand from international buyers. As we enter the week of January 19, 2026, the GBP/USD pair is showing some activity. We should remember the lessons from 2025, when sudden political news, such as tariff threats, could unexpectedly weaken the dollar and lift the pound. This highlights how political risks can overshadow basic economic trends.

Traders Get Ready for Market Swings

For derivative traders, it’s essential to brace for volatility triggered by news, not just data. The market’s response to previous tariff threats showed that the dollar can suffer due to unpredictable policies, leading to quick rallies in currency pairs like GBP/USD. Therefore, we should think about strategies, like buying options, that can benefit from sudden price movements caused by unexpected political news. Currently, all eyes are on the upcoming UK inflation data. The latest report from December 2025 showed UK CPI at 3.1%, above the Bank of England’s target of 2%, indicating a need for a stronger stance. A higher inflation figure this week could make a stronger case for the Bank of England to maintain interest rates, which would help support the pound. On the flip side, the US dollar’s strength is an ongoing concern but remains fragile. During the trade disputes of 2018-2019, the Dollar Index (DXY) dropped significantly by 2-3% after trade tensions increased, even with a strong US economy. We need to be cautious, as any sign of instability in US policy could quickly undermine the dollar’s recent gains. In this scenario, we might consider buying straddles or strangles on GBP/USD, which could profit from significant price changes in either direction. This strategy positions us to take advantage of surprises from the upcoming UK data or unexpected political news from the US. These positions help us navigate the challenges of persistent UK inflation and unpredictable US political risks. Create your live VT Markets account and start trading now.

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