GBP/USD is trading around 1.3420 during the Asian session on Monday, marking its second consecutive day of losses. The daily chart shows the 14-day Relative Strength Index (RSI) at 53, indicating that momentum has eased but still has a slight bullish tilt above the midline. The nine-day Exponential Moving Average (EMA) remains above the 50-day EMA, suggesting a bullish trend. The price is consolidating just below the short-term average while staying above the medium-term average. The nine-day EMA has flattened, which pauses the short-term trend. However, the rising 50-day EMA continues to support the overall upward trend.

Current Market Dynamics

GBP/USD opened with a slight bearish gap, trading just below the mid-1.3400s, showing a daily decline of 0.10%. Despite this drop, spot prices are not seeing much follow-through selling and are holding above last week’s swing low amid mixed fundamental factors. Geopolitical issues, including the ongoing Russia-Ukraine conflict and unrest in the Middle East, are intensifying due to recent US military actions in Venezuela. These factors are increasing demand for safe-haven assets like the US Dollar (USD). As a result, the USD Index, which measures the Greenback against multiple currencies, is recovering from recent lows and is applying pressure on the GBP/USD pair. Reflecting on late 2025, GBP/USD was trading around 1.3420. The technical outlook indicated a modest bullish bias, with the nine-day EMA above the 50-day EMA, although momentum was fading as shown by a cooling RSI. This suggested that while the overall uptrend remained intact, a consolidation period or small pullback could happen. The rise to the 1.34 range in 2025 was noteworthy, especially after the pair spent most of 2024 fluctuating between 1.25 and 1.28. This strength was mainly due to UK inflation being stickier than in the US, leading markets to expect the Bank of England would maintain higher interest rates longer than the Federal Reserve. The geopolitical issues, including the situation in Venezuela, increased dollar demand, limiting the pound’s growth at that time.

Strategic Considerations

In the late 2025 environment, derivative traders were advised to protect against a short-term drop without going against the longer-term uptrend. A common strategy involved buying near-term put options to hedge long positions or using a covered call strategy for income, leveraging the belief that the nine-day EMA would serve as a barrier. The expectation was for a shallow pullback rather than a full trend reversal. Now, in the first week of January 2026, new data supports the idea that this pullback was a buying opportunity. The latest UK inflation figures for December 2025 were slightly higher than expected at 3.2%, while last week’s US jobs report showed a slowdown in wage growth. This strengthens the interest rate differential that favors the pound sterling over the dollar. In the coming weeks, this reinforces the outlook for renewed upward momentum in GBP/USD. Traders may want to adjust their positions to align with a more bullish perspective, which could involve closing protective puts or rolling covered calls to higher strike prices. The focus now shifts to targeting a move above the previous highs from late 2025. Create your live VT Markets account and start trading now.

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