The Pound Sterling fell on Friday after the release of the December US Nonfarm Payrolls report, which had mixed results. This caused investors to rethink their predictions for a January interest rate cut. The GBP/USD pair was at 1.3412, down from a high of 1.3451 earlier. During the European trading hours, the Pound hovered close to a weekly low, around 1.3420 against the US Dollar. The GBP/USD pair faced more pressure as the US Dollar strengthened before the Nonfarm Payrolls data was released at 13:30 GMT.

Currency Market Trends

The GBP/USD pair has been steady for four days, trading near 1.3430 during the Asian market hours on Friday. The 14-day Relative Strength Index (RSI) is at 51.9, indicating neutral momentum after some strong readings. If the RSI drops below 50, it could suggest more declines for the pair. In other currency market movements, the EUR/USD pair ended the week around 1.1640, a 0.7% loss for the week, as the Dollar gained strength. The USD/CAD pair also rose as the US Dollar strengthened, while the Canadian Dollar struggled with falling oil prices. Following the December Nonfarm Payrolls report, expectations for a January Federal Reserve rate cut have significantly decreased. The likelihood of a rate cut, tracked by the CME FedWatch Tool, has dropped sharply from over 70% last week to below 40% now. This sudden change is a key factor behind the US Dollar’s strength. The labor report’s mixed results caused some volatility, but the market is focusing on inflation signs. Employers added 205,000 jobs, beating expectations. However, the month-over-month increase of 0.4% in average hourly earnings shows that wage pressures are still high, which may keep the Fed from cutting rates too soon. This strong labor market allows the Fed to maintain steady rates for a longer period.

Investment Strategies in High Volatility

For GBP/USD, this recent shift has pushed the pair below the important 1.3400 level, testing the 200-day moving average that has provided support for months. The sudden strength of the dollar is driving up implied volatility in currency options, making them costlier. We saw a similar volatile response to persistent UK inflation data in the third quarter of 2025, indicating this trend may continue. For derivative traders, this situation means that buying put options on GBP/USD for protection against further losses has become more expensive. As a result, we should consider using put spreads. This strategy involves selling a lower-strike put to fund the purchase of a higher-strike put. Although it limits potential profit, it significantly lowers the initial cash investment in a volatile market. The momentum for the dollar is widespread, with the US Dollar Index (DXY) breaking above the 103.00 resistance level. The unusual surge in Gold, exceeding $4,500 despite a stronger dollar, suggests that the market is also hedging against geopolitical risks. Even if Fed expectations change again, a high-risk premium could keep the dollar strong. Create your live VT Markets account and start trading now.

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