Sterling held weekly gains near 1.3565 against the Dollar in Thursday’s Asian session. The Dollar stayed under pressure as traders faced uncertainty over US trade policy. The US Dollar Index (DXY) edged lower to around 97.55.
GBP/USD rose 0.42% on Wednesday and moved back toward 1.3600. The pair had traded for several days in a roughly 1.3450 to 1.3520 range. The rebound followed a pullback from the late-January high near 1.3870 and pushed price back toward the 20-day EMA.
Dollar Pressure And Sterling Levels
UK CPI inflation fell to 3.0% in January from 3.4% in December, according to the ONS. This was the lowest reading since mid-2025. Markets priced in about an 80% chance of a 25 basis point Bank of England cut at the 19 March meeting. Services inflation was reported at 4.4%.
UK unemployment rose to a five-year high of 5.2%, which added to expectations of easier policy. In the US session on Wednesday, GBP/USD traded at 1.3523, up 0.29%. With little data released, markets focused on central bank comments and uncertainty over trade policy.
At this time in 2025, the Pound was holding near 1.35 against a weak US Dollar. Today, with GBP/USD closer to 1.2750, the picture has clearly flipped. Last year, broad Dollar weakness drove the move. That theme has since faded.
In 2025, markets were confident the Bank of England would cut rates in March after inflation dropped sharply to 3.0%. However, the Bank’s warning on services inflation proved important. The latest January 2026 CPI data shows inflation is still high at 3.8%. That makes near-term rate cuts much less likely than they seemed a year earlier.
For derivatives traders, this suggests implied volatility on GBP options may be too low. A slowing UK economy alongside sticky inflation can set up a sharp move in the currency. Ahead of the next BoE meeting, strategies such as long straddles may be worth considering, since they can benefit from a large move in either direction.
Shifting Rate Divergence
Back then, the US Dollar Index (DXY) was struggling near 97.55. It now sits firmly above 104. Recent data supports that strength: US non-farm payrolls in January 2026 beat expectations again, with 295,000 jobs added. The Federal Reserve is now seen as much more hawkish than the Bank of England.
Because of this, the story has shifted from broad Dollar weakness to sterling-specific pressure. Watch closely for further signs that the UK is weakening while the US stays more resilient. In that kind of backdrop, buying GBP/USD put options can be an attractive hedge or speculative trade. Past moves show the pair can revisit post-Brexit lows below 1.20 when this divergence becomes more pronounced.
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