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    Pound hovers around 1.3450 after softer US inflation report and Fed cut speculation

    by VT Markets
    /
    Jan 14, 2026
    The British Pound (GBP) is trading close to its opening price at 1.3450, showing a small decline of 0.03%. This movement comes as talks begin about potential Federal Reserve policy changes in 2026. The recent US inflation report has shifted expectations for monetary policy. The GBP has held onto some gains, trading around 1.3470 against the US Dollar during the European session. There’s growing anticipation for the US Consumer Price Index (CPI) for December, which will be released at 13:30 GMT.

    Market Movements and Trends

    In early European trading, the GBP/USD pair has edged up to roughly 1.3470. The US Dollar is under pressure as challenges may arise for Fed Chair Jerome Powell following comments about a renovation project, which is giving some support to the GBP. The US Consumer Price Index for December 2025 was reported at 2.8%, confirming the disinflation trend we’ve observed. This softer inflation reading clears the path for the Federal Reserve to start easing policy. As a result, markets are now predicting rate cuts in the first half of 2026. Fed funds futures now indicate a 75% chance of a 25-basis-point cut by the March 2026 meeting. This marks a significant shift compared to just a few weeks ago and is a major factor affecting the US Dollar. In contrast, in the UK, inflation in late 2025 stayed around 3.5%, suggesting that the Bank of England will be slower to make cuts.

    Strategic Considerations

    The growing difference in policy between a dovish Fed and a more cautious Bank of England supports the GBP/USD exchange rate. Political uncertainty regarding the Fed Chair adds to the dollar’s weaknesses. This situation has raised one-month implied volatility in the pair to 9.5%, the highest since the third quarter of 2025. Given the clear trends and increased volatility, we recommend buying GBP/USD call options. This strategy allows you to benefit from potential gains toward the 1.3600 level while managing risk in case of sudden market shifts. A similar situation occurred during the Fed’s policy change in 2019, which resulted in a prolonged phase of dollar weakness. Create your live VT Markets account and start trading now.

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