The Pound Sterling has gained slight ground against the US Dollar. This increase comes amid tensions between the US and EU, as President Trump threatens to impose an additional 10% tariff that could also affect the UK. During the European session, the GBP/USD pair hovers around 1.3400, while the US Dollar Index is about 0.2% lower at approximately 99.15. The Dollar is weakening due to rising political tensions regarding Greenland. President Trump announced on the weekend that new tariffs will start on February 1, prompting backlash from the EU. France’s President Macron has called these threats unacceptable. Analysts highlight that the Dollar is under pressure due to increased political risks, with the US Dollar falling 0.52% against the Swiss Franc.

Pound Sterling’s Volatile Performance

The Pound Sterling is experiencing fluctuations against other currencies, influenced by upcoming UK data and Trump’s tariff threats. UK Prime Minister Starmer is pushing for discussions instead of tariffs. Key UK economic data being released this week includes employment figures, consumer prices, retail sales, and PMI data. The Pound’s movement could depend heavily on these reports and the Bank of England’s policy decisions. The GBP/USD is close to 1.3397, dealing with the 50-Day EMA. The 14-day RSI shows moderate momentum, with a potential rise at 1.3401. However, if the price dips below 1.3309, it could drop to December’s low of 1.3180. Average Earnings Including Bonus will be closely watched, with expectations at 4.6%. The main factor driving the market right now is Trump’s new tariff threat against the EU and UK, which introduces significant political risk. While the US Dollar is weakening overall, this direct threat to the UK economy creates uncertainty for the Pound. We should expect increased implied volatility for GBP/USD as the February 1st tariff deadline approaches. We must pay attention to tomorrow’s UK employment figures, as they could influence the Bank of England’s next steps. If the unemployment rate drops to the expected 5.0%, it would be a sign of stabilization after it climbed from the low 4% range in 2025 to its recent peak. Conversely, disappointing unemployment or wage growth figures could negatively impact the Pound.

Strategic Currency Trading Approaches

Due to the risks from the tariff issue, buying options to trade the expected increase in volatility is a wise strategy. A long straddle on GBP/USD could benefit from significant price movements following UK data releases or new political statements. This method is more effective than making a straightforward directional bet in such an uncertain environment. This situation is similar to the US-China trade disputes experienced between 2018 and 2019 when unexpected tariff announcements led to sharp movements in currency pairs. Historical data suggests that major news can outweigh fundamental data in the short term. Therefore, it’s better to prepare for large movements rather than predict a specific direction. From a technical perspective, GBP/USD faces immediate resistance around the 1.3400 mark. While the CME FedWatch tool indicates that markets see a greater than 90% chance of the Fed keeping rates steady this month, dovish comments from Fed officials present a downside risk for the Dollar. This could support the Pound if UK data exceeds expectations, but the tariff risk remains a significant barrier to any potential rise. Create your live VT Markets account and start trading now.

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