The GBP/USD pair fell by about 0.17% as the US Dollar gained strength for the second day in a row. This decline follows a significant drop in precious metals, with Gold’s price falling over $1,000 after reaching a record high. Kevin Warsh’s nomination for the next Fed Chair hints at a tougher approach from the US central bank. The ISM Manufacturing PMI rose to 52.6, which increased the demand for US Treasury yields and the US Dollar. The Pound Sterling has weakened ahead of the Bank of England’s monetary policy meeting. Market experts expect no changes to the Bank Rate, which is currently at 3.75%. In the UK, the job market shows some signs of weakness, while inflation remains high. January brought some improvement in manufacturing, with the PMI going from 51.6 to 51.8.

Focus Of The Week

This week, attention will be on the Bank of England’s decisions and speeches. In the US, talks from Fed officials and economic data releases, such as Services PMI and jobless claims, are anticipated. Technical analysis suggests that GBP/USD could trade between 1.3600 and 1.3700, with a chance to reach 1.3800 if it breaks through 1.3700. However, if it falls below 1.3650, the pair could drop to 1.3600. The strength of the US Dollar is the prevailing theme, driven by Kevin Warsh’s nomination for Fed Chair and a strong ISM manufacturing report. This combination indicates a more hawkish US central bank, especially as US economic data continues to outperform expectations. As a result, we can expect ongoing pressure on currency pairs like GBP/USD in the short term. Last Friday’s Nonfarm Payrolls report for January highlighted this momentum, revealing the economy added 225,000 jobs compared to an expected 180,000. This has raised the US 2-year Treasury yield to 4.55%, marking its highest level in three months. As a result, the dollar has become more attractive. The market is now predicting a higher chance that the Fed will postpone any potential rate cuts until later this year. On the other hand, the outlook for the Pound is much more uncertain as we approach the Bank of England meeting this Thursday. Although UK manufacturing data showed a slight improvement, we must remember that UK inflation remained stubbornly high during most of 2025, which led the BoE to keep rates high even as the job market weakened. The market currently estimates a 60% chance of a BoE rate cut by the third quarter of 2026, indicating a growing gap in policy compared to the Fed.

Trading Strategies For Traders

For derivative traders, this environment suggests that volatility may rise. The 1-month implied volatility for GBP/USD has increased from 7.8% to 9.5% over the past week, making options more expensive. This means the market is getting ready for more significant price movements, especially around upcoming data releases and central bank announcements. With the fading bullish momentum, there may be opportunities in strategies that benefit from a declining or range-bound GBP/USD. Buying put options with strike prices below 1.3600 could be a good way to prepare for a further drop, especially if the important 1.3650 support level is broken. Bear put spreads could also lower the initial cost of this type of trade. Alternatively, for those who think the pair will stabilize as expected, selling out-of-the-money call options could be a wise strategy. With technical resistance at 1.3750 and 1.3800, selling calls with strike prices in this area allows us to collect premiums while the dollar’s strength prevents significant rallies in the Pound. This approach makes sense if the pair cannot reclaim the 1.3700 level. Create your live VT Markets account and start trading now.

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