The GBP/USD exchange rate has stabilized around 1.3430 USD after positive economic growth data from the UK, which could affect the Bank of England’s future actions. Since January, the pound has not seen much gain against the US dollar, but it has strengthened against the euro. Sentiment around the dollar is cautious due to geopolitical tensions with Iran and Greenland, along with President Trump’s comments about the Federal Reserve’s independence. Technical analysis suggests that the GBP/USD may have completed wave 2 at the 1.3010 level, hinting at a possible wave 3 rally according to Elliott wave theory.

GBP/USD Movement and Consolidation

Recently, the GBP/USD moved up to 1.3370 after strong US data was released. The USD/JPY has consolidated, while the euro has shown weakness against the US dollar. The Canadian dollar is also falling as the USD/CAD enters a consolidation phase. FXStreet offers news and insights related to the market, including the Orange Juice Newsletter. The content discusses the top brokers for 2026 and other market analyses. FXStreet states that it is not responsible for any mistakes or losses from the information provided. Looking back to late last year, there was some optimism for the pound around the 1.34 level. This was driven by better-than-expected UK growth figures, leading us to expect a more aggressive stance from the Bank of England. People were hopeful for a potential rally in GBP/USD. However, as we enter 2026, the situation has become more complicated. Recent inflation data from the end of 2025 showed UK CPI rose to 4.0%, which is stickier than many analysts hoped. As a result, the Bank of England is likely to maintain a strict policy, keeping the key interest rate at 5.25% to address price pressures.

US Dollar and Bank Policies

On the flip side, the US dollar’s weakness seen in late 2025 is starting to change. New data revealed that US inflation increased to 3.4% last month, prompting markets to rethink how quickly the Federal Reserve might lower rates this year. This uncertainty has led to renewed interest in the US dollar. This situation makes it risky for derivative traders to place straightforward bets. Instead, we should explore strategies that capitalize on increased volatility, such as straddles or strangles on GBP/USD. Mixed economic signals from both the UK and US suggest that the pair may experience significant fluctuations in the weeks ahead. The potential Elliott wave 3 rally mentioned last year seems to have lifted the pair, but it may now be slowing as central bank policies are reassessed. Given this scenario, we can use options to manage our risk. Consider buying puts with a strike below 1.3300 to guard against a downturn, or calls if we believe the pound can overcome the renewed strength of the dollar. Also, let’s keep in mind the pound’s relative strength against the euro noted at the end of last year. With the Eurozone facing slow growth reports in early 2026, long GBP/EUR positions could remain a useful hedge. This approach allows us to express a positive outlook on the pound without direct exposure to changes in US Federal Reserve policy. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now