The GBP/USD pair is currently around 1.3495, influenced by the strong performance of the US economy and a cautious market attitude. The US Dollar strengthened due to a positive ISM Services PMI, rising from 52.6 to 54.4. The Employment component also improved to 52, although Prices Paid saw a slight decrease. Additionally, fewer job vacancies reported in the JOLTS report further boosted the US Dollar. Traders are cautious, reflected by a nearly 2% rise in the CBOE Volatility Index, indicating heightened risk aversion. The Pound Sterling dropped by 0.10% to 1.3486 but recovered slightly after reaching 1.3516 earlier. The GBP/USD relationship is closely related to equity markets, and the absence of UK economic data has shifted focus to US developments.

Future US Economic Releases

Upcoming US data, including Initial Jobless Claims expected to rise to 210K and December’s Nonfarm Payroll projections of 60K new jobs, are in focus. Technical analysis suggests that GBP/USD may continue to decline daily; however, the Relative Strength Index indicates a potential opportunity for buyers. If the price falls below 1.3400, the next support level might be 1.3179. Conversely, closing above 1.35 could signal a possible upward movement. Reflecting on this time in 2025, GBP/USD struggled around the 1.3500 mark. A strong US dollar, driven by a robust ISM Services PMI, and the prevailing risk-off market sentiment made it tough for the pound to gain traction, especially with limited UK economic updates. Today, circumstances have changed, with the pair trading much lower near 1.2850. The divergence observed last year is now evident, as recent data show the UK economy contracted by 0.1% in the final quarter of 2025. In contrast, the US labor market remains strong, with a recent Nonfarm Payroll report for December 2025 indicating a gain of 182,000 jobs.

Market Sentiment and Central Bank Expectations

Market fear has shifted, with the VIX currently around a calm level of 14, compared to the increase seen in early 2025. This suggests the current strength of the dollar stems more from a solid economy than from fear-driven trading, making its position stronger. This divergence is influencing expectations for central banks in the coming months. With UK inflation down to 2.5% and economic activity slowing, the Bank of England has adopted a more dovish approach. On the other hand, the Federal Reserve sees no reason to aggressively cut rates due to the enduring strength of the US services sector and labor market. Given this backdrop, strategies that take advantage of further sterling weakness against the dollar should be considered. Buying GBP/USD put options with a strike price around 1.2700 for a March 2026 expiry could capitalize on a continued decline. This approach carries defined risk while enabling potential profits over the next few weeks. It’s essential to stay alert for upcoming inflation data from both the US and the UK. An unexpected increase in UK wage growth or a sharper-than-expected drop in US inflation could momentarily alter the pair’s path. Hence, any bearish strategies should be sized appropriately to manage potential short-term volatility. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now