The GBP/USD exchange rate has hit a four-year high of 1.3791. This increase comes as tensions rise after Trump threatened tariffs on South Korea, which has weakened the US Dollar. The US Dollar Index (DXY) dropped by 0.77%, moving toward multi-year lows due to rumors of Yen intervention and disappointing consumer confidence data. During the North American trading session, the British Pound rose to 1.3776, an increase of 0.76%. Ongoing trade tensions and intervention rumors have made the US Dollar less appealing, especially after Trump announced he would raise tariffs on South Korea from 15% to 25%.

US Dollar Influence

The drop in the US Dollar is due to potential intervention to support the Japanese Yen. Additionally, the ADP Employment Change 4-week average decreased from 8K to 7.75K. Furthermore, the US Conference Board Consumer Confidence fell to 84.5, below the expected 90.9. In the UK, retail prices have risen at their fastest pace in almost two years. The Bank of England is expected to keep interest rates steady, even as the UK faces political issues with the Labour Party. Traders are now focused on the upcoming Federal Open Market Committee meeting and guidance from Fed Chair Jerome Powell. With the ‘Sell America’ trade gaining momentum, there are opportunities to benefit from the strong upward trend in GBP/USD. A straightforward strategy is to buy call options with strike prices targeting the 1.3983 and 1.4000 resistance levels. The one-month implied volatility for GBP/USD has surged above 11%, a level we haven’t seen since mid-2025. This suggests traders are preparing for significant price changes. However, caution is warranted as the Relative Strength Index (RSI) indicates overbought conditions, which can lead to a consolidation or pullback. The Federal Reserve meeting poses a major risk; if Jerome Powell adopts a surprisingly hawkish stance, it could reverse the dollar’s decline and negatively impact bullish positions on the pound. Therefore, using bull put spreads or buying protective puts can help manage potential losses from a sudden price reversal.

Market Sentiment and Strategies

For now, the fundamentals support the sterling, as US economic data weakens while UK inflation signals strengthen. The recent consumer confidence figure of 84.5 in the US shows a concerning decline from the stronger figures of 2025. This difference suggests that the Fed may need to take a more dovish approach compared to the Bank of England, which is now facing renewed inflation pressures. Before the FOMC decision, the market seems to be stabilizing below the 1.3800 level. If you anticipate that the Fed’s announcement will disrupt this stability, consider setting up a long straddle by purchasing both a call and a put option at the same strike price. This volatility play will be profitable if GBP/USD makes a clear move in either direction after Powell’s press conference. Create your live VT Markets account and start trading now.

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