The Pound Sterling has bounced back to about 1.3465 against the US Dollar, recovering from a low of 1.3390. This rebound comes after a significant drop in the US Dollar, linked to an investigation involving Federal Reserve Chair Jerome Powell. Currently, the US Dollar Index has decreased by 0.3%, hovering around 98.80. The US Department of Justice has issued a subpoena regarding Powell’s Senate testimony and financial records from June 2025. Powell claims these charges are politically motivated, especially with criticism from President Donald Trump over interest rate decisions. This investigation could affect the independence of the Federal Reserve and the strength of the US Dollar.

Impact on UK Economy

In the UK, upcoming employment data and wage growth will likely impact the Pound Sterling. Many UK companies are hesitant to hire due to higher social security costs. In the US, the unemployment rate fell to 4.4% in December, though job growth numbers were disappointing. Anticipated US inflation data on Tuesday may also shape Federal Reserve interest rate decisions. The Pound Sterling is trading around 1.3465 and appears to be on an upward trend. The 20-day EMA is at 1.3438, and a resistance level of 1.3496 could help continue this bullish movement. The criminal charges against the Federal Reserve Chair are creating major uncertainty, affecting derivatives pricing. Currency volatility is increasing, with the CVIX index, a measure of G7 currency volatility, reaching a 12-month high of 9.5 in yesterday’s trading. In the upcoming weeks, traders might want to consider buying options to benefit from anticipated swings in the US Dollar.

Market Options and Strategies

The challenge to the Fed’s independence is a strong bearish signal for the US Dollar. Political interference in monetary policy can hurt investor confidence. We haven’t seen this level of political pressure since the 1970s, which caused high inflation and a weaker dollar. Thus, preparing for further dollar weakness is wise, especially against safe-haven currencies like the Swiss Franc. In the options market, demand for protection against a declining dollar is rising. The one-month 25-delta risk reversal for the US Dollar Index has turned negative, which means that put options are now pricier than call options given the expectation of a fall. Traders should think about purchasing out-of-the-money put options on dollar-tracking ETFs or call options on currency pairs like GBP/USD. For the Pound Sterling, the currency looks technically strong, but upcoming UK employment data poses a risk. Buying GBP/USD call options with a strike price above the important resistance level of 1.3500 could provide upside potential while minimizing downside risk. This approach offers protection in case the UK labor data, which indicated weak demand in 2025, disappoints. Attention will be focused on the US Consumer Price Index data tomorrow, expected to stay at 2.7%. If inflation exceeds predictions, the Fed may find itself in a tough spot between controlling prices and responding to political pressure. This conflict is likely to increase volatility, making straddle or strangle option strategies on the USD appealing around the data release. Create your live VT Markets account and start trading now.

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