The value of the Pound Sterling against the US Dollar has improved, rising from a two-month low before hitting resistance near 1.3600. Although it pulled back later in the week, GBP/USD still recorded weekly gains as the US Dollar experienced its biggest weekly drop in a month. On Thursday, GBP/USD faced downward pressure, dropping over 0.5% and breaking a three-day positive trend, falling further below 1.3500 on Friday. The US Dollar strengthened due to better economic indicators, such as a decrease in unemployment claims to 217,000 and an increase in the S&P Global Composite PMI to 54.6, indicating growth in private sector business activity.

GBP/USD Reaches a Two-Week High

The GBP/USD pair hit a two-week high after the US and Japan reached a trade agreement that eased previous tariff concerns. This agreement lowers planned tariffs to 15% and establishes a $550 billion fund to support the US economy, boosting market confidence. Given the mixed signals, we think the best opportunity lies in trading volatility instead of a clear market direction. The pair’s failure at a key resistance level followed by a sharp drop shows significant uncertainty. Traders might consider options strategies that profit from large price swings, no matter which way the market moves. We see a strong case for more US Dollar strength, which would likely push the pair lower. Recent data reveals US weekly jobless claims remain low at 231,000, and the S&P Global Composite PMI for April is at 51.3, showing ongoing private sector growth. This economic strength supports a stronger Dollar, making put options a good choice if you expect a re-test of the two-month lows.

Factors Supporting the Pound Sterling

However, we shouldn’t overlook factors favoring the Pound Sterling. The UK’s latest inflation rate stands at 3.2%, significantly above the central bank’s target, which might delay expected interest rate cuts. This difference in monetary policy could strengthen the British currency, making call options appealing during dips. Historically, the pair has shown the ability to reverse sharply, like the significant drop from over 1.28 to below 1.24 between March and April this year. This pattern of quick, large moves reinforces our belief that the market is ready for a notable shift. Given the strong US data and ongoing UK inflation, preparing for a sharp move is wiser than betting on a specific trend. Create your live VT Markets account and start trading now.

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