GBP/USD fell after two days of gains. It traded near 1.3480 during Asian hours on Tuesday as the US Dollar bounced back after two sessions of losses. Later, the focus turns to the US ADP Employment Change four-week average and speeches from Federal Reserve officials.
The Dollar has also been under pressure as foreign investors cut exposure to US assets because of trade uncertainty. The Wall Street Journal reported that the Trump administration is considering new national security tariffs under Section 232 of the Trade Expansion Act of 1962. These would be separate from the 15% global tariff announced on Saturday.
Market Drivers And Policy Signals
Fed official Christopher Waller said support for a March rate cut depends on February labour data. Swaps now price a 5% chance of a 25-basis-point cut in March and about 50 bps of easing in 2026.
Sterling stayed soft as markets expect the Bank of England may start cutting rates as early as March. This view is tied to weaker labour conditions and easing inflation. MPC member Alan Taylor said inflation should return to the 2% target and supported more near-term cuts.
The pound dates back to 886 AD and is the UK’s currency. It is the fourth most traded currency, making up 12% of FX (about $630 billion a day in 2022). Key pairs include GBP/USD (11%), GBP/JPY (3%), and EUR/GBP (2%).
With the Bank of England hinting at a March cut, the policy gap between the UK and the US is widening. UK data show inflation fell to 2.3% in January and Q4 2025 GDP grew just 0.1%. This supports our view that the BoE will move sooner than the Fed. This backdrop suggests GBP/USD may have more downside in the weeks ahead.
Trade Ideas And Key Risks
Based on this view, we see value in strategies that benefit if the pound falls. Buying GBP/USD put options expiring in April could capture a move after the March central bank meetings. If you are less bearish, a put spread—such as buying a 1.34 put and selling a 1.32 put—can lower the cost while positioning for a steady decline.
The main risk to this bearish view is uncertainty around US trade policy, which could weaken the dollar unexpectedly. This risk shows up in implied volatility, which has risen to about 8.5% for three-month options. The higher premium can make selling volatility attractive, but it requires strict risk control because tariff headlines can shift quickly.
This setup looks different from late 2025, when optimism about a stronger UK recovery kept the pair supported above 1.3600. Now the Fed remains data-dependent after a strong January jobs report that added 225,000 roles, and GBP/USD (Cable) looks biased lower. The key event is February US labour data, which will strongly shape the Fed’s March decision.
Traders should be ready for further weakness below 1.3500. In this environment, using options to cap risk is the safer approach. Any bounce back toward 1.3500 may offer a chance to add fresh bearish positions, targeting the 1.3350 support area.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
