GBP/USD has climbed to 1.3600, reaching its highest point since September 2025. This increase is supported by strong UK economic data and a general decline in the US Dollar. Currently, GBP/USD is up nearly 0.73%, continuing this upward trend. In the UK, positive economic reports have lowered expectations for an upcoming rate cut by the Bank of England. The flash Composite PMI rose to 53.9 in January, with gains in both services and manufacturing PMIs. Retail Sales also saw a boost, increasing by 0.4% month-over-month in December, and annual sales grew by 2.5%.

US Dollar Trade Policy Concerns

On the other hand, the US Dollar is struggling due to concerns over trade policies and questions about the Federal Reserve’s independence. President Trump’s trade approaches and potential political influence over the Fed are shaking confidence. Moreover, investigations into Fed Chair Jerome Powell are adding to worries about US monetary policy credibility. These issues are causing traders to move away from the US Dollar and consider other G10 currencies. The US Dollar Index is hovering near its lowest levels since October, and more traders expect rate cuts from the Fed this year, putting additional pressure on the currency. Meanwhile, the Pound Sterling remains one of the most traded currencies globally, heavily influenced by decisions from the Bank of England. This year tells a different story than last, when GBP/USD rose to a four-month high of 1.3600. That surge in early 2025 was driven by strong UK economic performance, which made a Bank of England rate cut less likely. Concurrently, strong selling of the US Dollar stemmed from concerns about the Federal Reserve and trade policies. Throughout 2025, the Bank of England remained steady as UK inflation stubbornly stayed above target, averaging 2.8% in the last quarter. However, recent numbers from the Office for National Statistics show that GDP growth slowed to only 0.1% in Q4 2025, raising doubts about the sustainability of this strength. This presents a challenge for the BoE going forward.

Market Expectations and Strategies

In the US, expectations from last year were met as the Federal Reserve implemented two 25-basis-point rate cuts in 2025, one in July and another in December. While the political noise around the Fed has quieted, the US Dollar Index (DXY) has recovered from its lows and is now trading near 101.50, showing a divergence from the widespread dollar weakness seen a year ago. With the UK economy cooling and the US Dollar gaining strength, the bullish trends observed in early 2025 are fading. The current outlook suggests that GBP/USD may trend downwards in the coming weeks. For traders, buying put options on GBP/USD could be a wise strategy to gain downside exposure while managing risk. Create your live VT Markets account and start trading now.

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