The GBP/USD pair is currently at about 1.3685, its highest level since September 2025. This increase comes from better-than-expected UK Retail Sales and PMI data. Analysts now believe that further rate cuts from the Bank of England may be postponed. Worries about the Federal Reserve’s independence and a possible US government shutdown are putting pressure on the US Dollar. The Trump administration has also hinted at tariffs on European countries due to control over Greenland, although we expect the usual back-and-forth in trade war talk.

Trading Week Overview

This trading week started with GBP/USD close to the 1.3700 level for the first time in months. Important upcoming events include a Federal Reserve interest rate decision and the nomination of Trump’s choice for the new Fed Chair. On Monday, the Pound rose by 0.55% against the US Dollar amid speculation about potential interventions in foreign exchange markets. Even with solid US data, these rumors ahead of the Federal Open Market Committee’s meeting in January can’t be overlooked. Last Friday, there were reports of interventions aimed at influencing the Japanese Yen and weakening the US Dollar. Financial institutions were approached about the yen’s exchange rate, signaling market fluctuations. With the pound pushing hard against the 1.3700 mark, the current trend favors bullish strategies. Strong economic data from the UK last week supports this momentum. It may be a good time to buy call options or set up bullish call spreads on GBP/USD to take advantage of a potential breakout in the weeks ahead.

Market Analysis

The pound’s strength is backed by solid data, giving us confidence in this upward trend. Recent statistics show retail sales volumes grew by 1.2% in December 2025, altering market expectations. Traders now believe there’s a lower chance of a Bank of England rate cut in the first quarter, keeping the interest rate at 5.25% and supporting the pound. On the other hand, uncertainty surrounding the Federal Reserve is weighing on the dollar. The CME’s FedWatch Tool indicates over a 75% chance that the Fed will keep rates stable through March, a big change from the two rate cuts expected in November 2025. This caution is linked to the forthcoming announcement of a new Fed Chair, affecting dollar sentiment. This uncertainty has led to an uptick in implied volatility for GBP/USD options, making outright call purchases more expensive. In this environment, selling out-of-the-money put spreads could be advantageous. This approach allows us to collect premium while betting on the price remaining above a given level, leveraging the higher volatility. The key event to watch is the Federal Reserve’s interest rate decision and accompanying statement this week. While no rate change is expected, a more hawkish tone could quickly shift this bullish momentum and push the pair back towards the 1.3500 level. We must be ready for this possibility, as a stronger dollar might invalidate the current setup. Create your live VT Markets account and start trading now.

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