The GBP/USD pair has climbed to around 1.3470 in early European trading. Concerns about the independence of the US Federal Reserve are putting pressure on the US dollar. This comes after the US Department of Justice announced plans to potentially charge Fed Chair Jerome Powell due to his remarks about a renovation project. Powell received subpoenas from the Justice Department regarding his comments about cost overruns on a $2.5 billion renovation at the Federal Reserve’s headquarters. He believes these actions are attempts to pressure the Fed into lowering interest rates, which raises questions about its independence and weakens the dollar.

Bank Of England’s Monetary Policy

The Bank of England (BoE) cut its interest rate to 3.75% in December and may lower it again by 2026. Analysts think the BoE could keep rates stable in February but might consider a 0.25% cut in March or April. Traders are closely watching the US Consumer Price Index (CPI) data set to be released later today. A forecasted 2.7% year-over-year increase could provide clues about future US interest rate movements. The Pound Sterling (GBP) is the oldest currency in the world and is greatly influenced by BoE policies. Economic reports, such as GDP and trade balance data, also impact its value, with a positive trade balance likely strengthening the currency. On January 13, 2026, the pressure on the US dollar due to concerns over the Federal Reserve’s independence is a key focus. The potential indictment of the Fed Chair represents significant political uncertainty, affecting the GBP/USD pair, which has gained strength above 1.3450 as a result.

US Consumer Price Index And Its Impact

Traders should be ready for the US CPI data release later today, with expectations for a 2.7% year-over-year increase. The November 2025 figure was 2.9%, so a 2.7% reading would indicate a continuing disinflation trend. This could support the argument for Federal Reserve rate cuts later this year and lead to further dollar weakness. The combination of political uncertainty and important data is increasing implied volatility in GBP/USD options. A strategic approach in the next few days might involve using long straddles to take advantage of potential price swings, allowing traders to profit from significant moves in either direction without making a specific bet on the CPI report or the political situation. It’s also crucial to remember the Bank of England’s dovish stance, evidenced by its rate cut to 3.75% in December 2025. With UK unemployment rising to 4.5% in the last quarter, the central bank has solid reasons to consider further cuts in March or April. This economic weakness may limit any significant, long-term rallies for the pound. Given the current environment, short-term bullish strategies on GBP/USD may be beneficial due to the political challenges faced by the dollar. Buying near-term call options or call spreads could allow traders to capture potential upward movements following today’s news. However, we should remain cautious about the pound’s longer-term outlook given the weak economic situation in the UK. This scenario, in which political pressure is applied to the central bank, has historical parallels to events in the US during the 1970s. Those situations ultimately resulted in poor monetary policy and diminished long-term confidence in the currency. Consequently, while we navigate short-term fluctuations, we must monitor whether these threats to the Federal Reserve’s independence evolve into a more consistent concern. Create your live VT Markets account and start trading now.

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