The Pound Sterling has increased by 0.6% against the US Dollar, outperforming most G10 currencies. This rise comes from strong domestic employment data and expectations that the Federal Reserve will ease its policies. The UK-US spread has reached a new three-month high, surpassing 15 basis points for the first time since May. The Pound’s current level is above the 50-day moving average of 1.3503 and is close to breaking the late July high in the upper 1.35 range.

Momentum Remains Strong

Momentum is strong, with the Relative Strength Index (RSI) climbing above 60. There appears to be little medium-term resistance until it reaches the early July high, which is in the upper 1.37 range. Expectations suggest a near-term range between 1.3500 support and 1.3620 resistance. We view the Pound’s strength as a result of differing economic outlooks. The latest UK jobs report from July 2025 shows wage growth at 5.8%, putting pressure on the Bank of England to maintain rates. This contrasts with growing expectations that the Federal Reserve will ease its policies. Markets are now pricing in nearly a 75% chance of a Fed rate cut at the September meeting, especially after US core inflation for July fell to a two-year low of 2.6%. This has widened the two-year UK-US yield spread, encouraging traders to prefer the Pound. The recent rise above 1.3500 appears well-supported by this difference in policies.

Given the Strong Upward Momentum

With strong upward momentum and the RSI rising above 60, buying call options looks like a good strategy for the next few weeks. We suggest targeting strikes near the 1.3700 level to aim for that early July high. Selling out-of-the-money puts below the 1.3450 level could also be a smart way to collect premiums. One-month implied volatility for GBP/USD has increased to 8.5%, indicating that the options market expects a decisive break above the immediate 1.3620 resistance. For those who are already short, now is a good time to hedge by buying calls to limit potential losses. A similar sharp rally in the second half of 2024 caught many off guard. Create your live VT Markets account and start trading now.

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