GBP/USD rose by 0.55% on Monday, continuing its two-day recovery. The pair is following a bullish trend on the daily chart, trading above the 50 and 200 EMAs at 1.3507 and 1.3310, respectively.
After peaking at 1.3869 in January, the pair faced a pullback when the Bank of England decided to keep rates at 3.75% with a divided vote. On Monday, the price bounced back, reaching around 1.3695, and forming a bullish candle above 1.3690.
Market Events And Indicators
On Tuesday, watch for risks involving US Retail Sales and the Employment Cost Index, along with speeches from the Federal Reserve. The Stochastic Oscillator is neutral, indicating a potential upward movement if momentum builds.
If GBP/USD breaks above 1.3700, it could challenge resistance around 1.3770, with a stronger move targeting 1.3870. Weak US data may help the Pound, but strong Retail Sales or hawkish Fed comments could drive the price back to 1.3590.
The British Pound is the fourth most traded currency globally, with pairs like GBP/USD, GBP/JPY, and EUR/GBP. The Bank of England’s interest rate choices impact the GBP’s value, driven by inflation. Economic indicators, such as GDP and employment data, along with the Trade Balance, also affect the GBP’s strength.
GBP/USD has extended its recovery and is holding above the essential 1.3690 level after a solid two-day rally. This follows a significant drop from January’s high of 1.3869, a reaction to the Bank of England’s unexpected dovish 5-4 vote split in favor of a rate cut, which has temporarily capped the Pound’s potential.
Trading Strategies And Market Insights
New US data has energized bullish traders. December Retail Sales fell to -0.2%, below the forecast of +0.4%, and the Q4 Employment Cost Index showed only a 0.9% rise in wages, slower than expected. This weak data puts pressure on the dollar, allowing the Pound to test resistance near 1.3770 before the mid-week Non-Farm Payroll (NFP) report.
With the important NFP report still to come this week, buying options is a smart way to manage risk. Implied volatility for GBP/USD weekly options has risen to 8.5%, indicating expectations of a significant price move. Traders might consider purchasing call options with a strike price above 1.3770 for a potential breakout while limiting downside risk to the premium paid.
The daily chart remains bullish as long as we stay above the 50-day EMA, currently near 1.3507. We saw a similar situation in the third quarter of 2025, where the 50-day EMA acted as strong support for several weeks. If the price fails to hold 1.3600 with renewed dollar strength, it would suggest a deeper correction, bringing attention back to that key moving average.
It’s important to note that recent trader commitment reports indicate that large speculators have reduced their net long GBP positions for the second week in a row. This suggests that although the trend is upward, some big players are taking profits after a strong rally from the November 2025 lows around 1.2300. Ongoing uncertainty regarding Prime Minister Starmer’s government may become a headwind if attention shifts from US data back to UK fundamentals.
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