GBP/USD is showing strength, trading above the mid-1.3600s, close to a four-month high. This is mainly due to a weaker US Dollar, influenced by the “Sell America” trend and expectations of rate changes from the Bank of England. Trump’s global approach has raised doubts about NATO, impacting the USD. The US Dollar Index hit a four-month low, benefiting the GBP/USD pair. Anticipation of further rate cuts by the Federal Reserve also adds pressure to the Dollar.

FOMC Meeting Anticipation

Ahead of the FOMC meeting, some traders are changing their positions, leading to a slight recovery in the USD. This week’s US Durable Goods Orders data is expected to influence short-term trading for GBP/USD. In the currency heat map, the US Dollar showed different strengths against other major currencies over the past week, being only stronger against the Canadian Dollar. The data illustrates the USD’s percentage changes against key currencies, highlighting potential trading opportunities. Looking back to late 2025, we noticed a clear trend of selling the US dollar, which drove GBP/USD to multi-month highs around 1.3680. This was due to doubts about US leadership and expectations of continued interest rate cuts by the Federal Reserve. Last year ended with the dollar on a downward trend. This negative sentiment for the dollar grew when late 2025’s US durable goods orders came in worse than expected and the Fed delivered another anticipated rate cut. Meanwhile, the British pound remained strong. UK inflation data from December 2025 showed consumer prices holding steady at 3.5%, well above the Bank of England’s 2% target, which kept rate cut hopes in check.

Complicated Economic Picture

However, the economic situation has become more complex in early 2026. The US non-farm payrolls report from early January revealed a surprising increase in job creation, exceeding forecasts and prompting a re-evaluation of the “Sell America” trade. This suggests that the US economy may be more robust than previously thought, challenging the belief that the Fed will only lower rates. For derivative traders, this creates an opportunity to trade on volatility rather than direction. With GBP/USD hovering near the critical 1.3700 resistance level, buying a short-dated straddle or strangle might be a smart move. This strategy allows us to profit from a significant price change in either direction, whether strong US data boosts the dollar or weaker sentiment returns. Current implied volatility for GBP/USD options is not excessively high, making these positions relatively affordable. Historically, when major economic narratives shift, like the current weak dollar trend, a period of consolidation is typically followed by a sharp breakout. It’s wise to prepare for this uncertainty before the next key US inflation report or FOMC meeting clarifies the direction ahead. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now