The GBP/USD currency pair gained strength, reaching around 1.3400 during the early Asian session on Monday. This rise was driven by a weaker US Dollar following President Trump’s recent tariff threats against Europe concerning Greenland. US markets were closed for Martin Luther King Jr. Day. Trump suggested a 10% import tariff on goods from several European countries, including the UK, starting February 1, to push for Greenland’s acquisition.

The Pound Begins Strong

The Pound Sterling kicked off the week on a high note, climbing to 1.3486 after news broke about criminal charges against Fed Chair Jerome Powell. However, the mood shifted negatively when a Bank of England policymaker made dovish comments, directing attention to the Federal Reserve’s upcoming monetary policy meeting. Meanwhile, meme coins like Dogecoin, Shiba Inu, and Pepe saw a drop of about 3%, continuing last week’s downturn. These coins fell below important moving averages, indicating possible changes in momentum. Gold reached a new high of $4,690 due to Trump’s tariff threats and geopolitical uncertainties, causing caution in the markets. Overall, this week brought volatility that affected both traditional and digital assets. Reflecting on January 2025, we witnessed the Pound spike against the Dollar due to geopolitical shocks. The market had a strong reaction to unexpected tariff threats from the US, reminding us how quickly political news can change currency pairs. That volatility was a significant aspect of trading this pair last year.

Economic Fundamentals Shape the Market Today

As of January 19, 2026, the market is now influenced more by economic fundamentals rather than sudden political changes. The main focus is the differing policies of the Bank of England (BoE) and the US Federal Reserve. This shift means trading is less about reacting to news and more about anticipating central bank actions. We are closely monitoring inflation data, as UK inflation remains stubbornly high compared to the US, with the last reading for 2025 at 3.9%. In contrast, inflation in the US has been consistently cooling, giving the Federal Reserve greater flexibility. This difference indicates that the dollar may have underlying strength against the pound. Given this situation, we think that selling GBP/USD during any significant rallies could be a wise strategy in the upcoming weeks. Also, using options to buy puts on the pair might be a way to profit from a possible downturn while managing risk. The volatility we experienced last year shows that sudden spikes can create good entry points for short positions. The dramatic rise in gold prices to nearly $4,700 an ounce during the 2025 tariff scare was a classic example of a flight to safety. We should take this lesson to heart and consider using derivatives on gold as a hedge against any new, unexpected global risks. Even as we concentrate on central banks, the possibility of a political wildcard event remains. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now