The GBP/USD pair is having trouble staying above the 1.3700 mark for the second day in a row. Even though it dipped a bit, it remains above the mid-1.3600s, with limited selling stopping a steep drop from its four-month high. The US Dollar has seen a slight recovery from its lowest point since September 2025. This creates challenges for the GBP/USD pair, as traders adjust their positions ahead of the US Federal Reserve’s policy announcement. Many expect that rates will remain stable after their meeting.

GBP/USD Hits New Highs

The GBP/USD pair rose above the four-month high of 1.3650, reaching its highest level since September 17. This rise follows a four-day upward trend that began at the 200-day simple moving average around 1.3400. The pair continues to trend positively, staying above a long-term upward trendline and showing an increasing MACD value above zero. While the expanding Bollinger bands indicate high momentum, the RSI is stable near the 70 overbought level, suggesting possible sideways movement. In other markets, the EUR/USD remains strong above 1.1900, while gold is holding steady at about $5,100 per troy ounce. Bitcoin is stabilizing around $88,000 after a recent increase, and Axie Infinity’s token, AXS, has risen by 3% following the announcement of its new app token. The pound is facing challenges at the 1.3700 level against the dollar, a crucial resistance point it has struggled to break for two days. While the momentum that pushed us to this four-month high is strong, technical indicators hint that the rally may have gone too far. Traders should be cautious about expecting an easy climb from here.

Traders Watch Federal Reserve Decision

This price movement is mainly due to the dollar’s weakness rather than the pound’s strength, as the dollar has dropped to its lowest level since September 2025. Markets are preparing for the Federal Reserve to keep interest rates steady at its meeting tomorrow, especially after the latest CPI report for December 2025 showed core inflation cooling to 2.9%. This data suggests that the Fed’s rate-hiking cycle may be over, putting continued pressure on the dollar. For derivative traders, this creates an opportunity with the upcoming Fed announcement. A bull call spread on GBP/USD could be useful, allowing one to profit from a potential breakout above 1.3700 while keeping upfront costs low. This strategy benefits from a price increase but also protects against potential loss if prices remain stagnant after the meeting. Implied volatility is expected to be high ahead of the central bank’s decision, making options pricier. This volatility could make selling cash-secured puts below the recent support level near 1.3600 an appealing strategy for collecting premiums. This approach is for those who believe any dips will be brief, keeping the pair above this support level in the coming weeks. This situation feels familiar, as we saw the dollar index drop by over 4.5% in the last quarter of 2025 when markets anticipated a peak in interest rates. The current strength in assets like gold, nearing $5,100, and Bitcoin, around $88,000, reinforces this general sentiment against the US dollar. This widespread weakness offers strong support for the pound, even as it struggles at resistance. Create your live VT Markets account and start trading now.

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