The GBP/USD pair improved to about 1.3435 in the early European session, mainly due to UK inflation rising more than expected in December. The Consumer Price Index (CPI) climbed to 3.4% year-over-year, up from 3.2% in November. Trading moods are mixed, with the GBP/USD pair holding steady above 1.3400 during the Asian session. Investors are now looking at upcoming US economic data, including the Personal Consumption Expenditure (PCE) Price Index and the Q3 GDP growth report.

Presidential Comments Impact

The GBP/USD briefly dipped after US President Donald Trump made comments about Greenland. His remarks eased market tensions by avoiding threats of tariffs against Denmark. Other market factors include changes in indices and trade policies. Articles highlighted a thawing in US-EU relations and how strong job data is affecting currencies like the AUD. Talks about trade rules, including NATO tariffs, are still influencing trader opinions. A year ago, in January 2025, the Pound had strengthened due to unexpectedly high UK inflation. The CPI had risen to 3.4%, pushing GBP/USD towards 1.3435, as traders anticipated an active response from the Bank of England. This surprise created a good buying opportunity for those betting on a stronger Sterling. Fast forward to January 22, 2026, and things have changed significantly. The latest data from the Office for National Statistics indicates that UK CPI has decreased to 2.1% for December 2025, closer to the Bank of England’s 2% target. This cuts down the likelihood of sudden interest rate hikes and suggests we won’t see the same upward momentum as last year. On the US side, the economy shows steady but slower growth, with the Q4 2025 GDP estimated at 1.9%. The Federal Reserve is taking a neutral stance, pausing the rate hikes that were common in 2025. This is different from the uncertainty traders felt a year ago while waiting for crucial US data.

Impact on Derivative Trading Strategies

For those trading derivatives, this blend of steady inflation and clearer central bank policies points to lower implied volatility in the coming weeks. Unlike last year, when purchasing call options on GBP/USD made sense due to inflation surprises, current conditions favor range-bound strategies. Selling strangles or straddles, with strike prices outside the recent 1.2650-1.2800 range, could be a wise strategy to earn premiums. Currently, the pair trades around 1.2720, a full 700 pips lower than in January 2025. That previous 1.3400 level is now a notable long-term resistance rather than a stable zone. Thus, building trades that profit while the pair stays well below those highs seems smart. Keep an eye on the upcoming Bank of England meeting minutes and the US Non-Farm Payrolls report in early February. These events will be key tests for the market’s current low-volatility expectations. Any unexpected changes could quickly lead to new opportunities for directional trades. Create your live VT Markets account and start trading now.

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