GBP/USD is staying stable as the year ends, holding strong around the 1.3500 level. The usual lower trading volumes during the holiday season are not expected to drive the currency pair much in either direction as 2025 concludes. This week, there’s limited economic data coming from the UK, resulting in a quiet market. Additionally, the Federal Reserve’s Meeting Minutes will be released during this low-activity period, providing insights into their policy discussions as the year wraps up.

Market Analysis

Traders are looking for signs that the Federal Reserve may shift to a more dovish policy. The latest update from the Federal Open Market Committee indicates expectations of two quarter-point interest rate cuts over the next two years. Rate traders are also anticipating these two cuts by September 2026. GBP/USD is showing a mix of fundamental and technical signals. The 1.3500 support level is helping to counteract potential downward pressure as traders await more economic data to guide future movements of the currency pair. Currently, GBP/USD remains steady above the 1.3500 support level, but the holiday trading is keeping the market quiet. This typical year-end lull occurs as many major players have closed their books for 2025. We can expect significant moves to start in the first full trading week of January 2026 when market volume and volatility return.

Trading Strategies

Today’s focus is on the Federal Reserve’s meeting minutes, where traders will look for any signs of a dovish shift that aligns with market expectations. November’s core PCE inflation in the US was reported at 2.8%, leading traders to believe the Fed may have to cut rates sooner than their current projections indicate. If the minutes suggest that inflation is no longer the main concern, it could weaken the dollar and boost GBP/USD. The situation in the UK, however, is less clear, which might weigh on the pair. UK inflation for November 2025 remained stubbornly high at 3.1%, supporting the Bank of England’s decision to keep rates high. Yet, stagnant Q3 2025 GDP figures indicate economic struggles, which could limit the Pound’s ability to strengthen further on its own. For derivative traders, this suggests a strategy aimed at increased volatility in early 2026. Historically, we see a surge in trading activity in January as new capital enters the market. Buying straddles or strangles could position traders for a significant breakout from the 1.3500 level, regardless of which direction it takes once liquidity returns. Alternatively, traders may use options to express a more directional view based on the Fed’s stance compared to market rates. If we believe traders are correct about the Fed cutting rates by mid-2026, buying call options on GBP/USD with March or June 2026 expirations provides a way to bet on dollar weakness with limited risk. On the other hand, if the Fed minutes are unexpectedly hawkish today, put options could guard against a sharp drop below the 1.3500 support level. Create your live VT Markets account and start trading now.

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