GBP/USD slipped to around 1.3480 in Asian trade on Tuesday. It stayed below 1.3500 as the US Dollar bounced back after two straight sessions of losses. Markets are watching the US ADP Employment Change four-week average and speeches from Federal Reserve officials. The US administration is weighing new national security tariffs on several industries after the Supreme Court struck down parts of its second-term tariff programme. The new plan would use Section 232 of the Trade Expansion Act of 1962 and would sit alongside a 15% global tariff announced on Saturday.

Central Bank And Inflation Backdrop

On Monday, GBP/USD mostly moved sideways after the Bank of England held rates in February by a narrow 5–4 vote. UK CPI eased to 3.0%. The Fed kept rates at 3.50% to 3.75%, and January US CPI was 2.4%. The pair closed up 0.04% near 1.3495. It also traded below the 50-day EMA at 1.3523, with the 200-day EMA at 1.3371. The January high was 1.3869 and the December low was near 1.3287. Support sits at 1.3475, then 1.3371. Resistance is 1.3527, then 1.3600. GBP/USD also rose 0.31% on Monday to 1.3507 after rebounding from 1.3475, following the Court’s rejection of IEEPA-based tariffs. Because the Bank of England looks more dovish while the Federal Reserve remains patient, we see GBP/USD as more likely to drift lower. The market is pricing in a BoE rate cut, likely in March or April 2025, which could keep pressure on the Pound. As a result, we should consider buying put options or using bear put spreads to position for a possible break below the 1.3475 support level.

Volatility And Event Risk Outlook

The biggest uncertainty is US trade policy. It creates two-way risk and points to higher volatility ahead. A proposed 15% global tariff could disrupt markets and may weaken the US Dollar if foreign investment slows. This would be similar to early 2024, when worries about US political stability briefly weighed on the dollar. Because of this, outright short positions can be risky, since a sudden political shift could trigger a sharp reversal. This backdrop suits volatility-based strategies. With key Fed speeches and the ongoing tariff debate, we expect implied volatility on GBP/USD options to rise from current low levels. We should consider buying straddles or strangles ahead of these events to benefit from a large move in either direction, no matter what drives it. Technically, the pair is trading below the 50-day moving average, which supports the recent bearish tone. If selling pressure continues, we see the 200-day EMA at 1.3371 as the next major target. A clear break below that level would suggest a larger shift in the trend, and we should be ready to add to bearish positions. Still, the Stochastic Oscillator is in oversold territory, which suggests the selling may be losing strength. One-month risk reversals for GBP/USD have also flattened, meaning traders are less willing to pay up for downside protection. A rebound could follow if Fed speakers sound more dovish than expected or if the tariff plan is delayed. In that case, a move back above 1.3527 would be an important signal to watch. Create your live VT Markets account and start trading now.

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