The Pound Sterling traded near 1.3645 against the US Dollar during the European session on Monday. GBP/USD was steady as focus shifted to UK labour market data for the three months to December. The UK ILO unemployment rate is expected to hold at 5.1%, the highest since January 2024. Average earnings excluding bonuses are forecast to rise 4.2% year on year, down from 4.5%.

Uk Inflation And Labour Data Focus

UK CPI data for January is due on Wednesday. Headline inflation is forecast at 3.0% year on year, down from 3.4% in December. The US Dollar was steady during an extended US weekend, with markets closed on Monday for a holiday. The US Dollar Index (DXY) edged up to around 97.00. Markets are also watching comments from Federal Reserve Governor Michelle Bowman on Monday. Her remarks could shift expectations for US interest rates. At the same time in 2025, the Pound was holding near 1.3645 against the Dollar as traders waited for key data. Today, the pair is much lower, near 1.3150. The calm of that period now feels far away. The sharp drop over the past year has been driven by the economic split that was starting to form back then.

Rate Differentials And Strategy Implications

Expectations for a weaker UK labour market proved accurate. Official 2025 data later showed the unemployment rate rose to 5.2% for that period. Wage growth also slowed more than expected, giving the Bank of England a clear signal. That trend continued, and the latest figures from January 2026 show wage growth has eased to 3.1%. This slowdown gave the Bank of England room to start cutting rates in August 2025, which was a key reason for the Pound’s decline. Since then, the BoE has delivered three rate cuts, taking the base rate down sharply. This is very different from the path followed by the US Federal Reserve. In February 2025, the US Dollar Index was steady near 97.00. Today, it is much higher, around 104.50, showing a major shift in policy expectations. The move has been supported by January 2026 US inflation data, which came in hotter than expected at 3.4%. That reduced the pressure for aggressive US rate cuts. In early 2025, markets were looking for signs of US rate cuts. Instead, the Fed kept rates unchanged for longer than expected because service-sector inflation stayed firm. This widened the interest-rate gap and has strongly favoured the US Dollar over the Pound. The Fed only made its first small cut in December 2025, well after the BoE began easing. Given this backdrop, it may make sense to consider strategies that benefit if the Pound stays weak against a more resilient Dollar in the weeks ahead. One approach is buying GBP/USD put options, which could gain if the pair falls toward the 1.3000 psychological level. Another is selling out-of-the-money call options to collect premium while taking the view that a strong rally is unlikely. Create your live VT Markets account and start trading now.

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