The Pound Sterling (GBP) has decreased by 0.2% and is trailing behind most G10 currencies as we get closer to Friday’s North American trading session. The recent price movements have been mixed, mainly influenced by external factors since there hasn’t been much domestic data released.

Domestic Risk Returns Next Week

Next week, we will see domestic risks return with new industrial production and trade data, alongside appearances from members of the Bank of England’s (BoE) Monetary Policy Committee (MPC). The BoE has recently been vague about its plans, maintaining a cautious tone because of uncertainties around the ‘neutral’ interest rates. Short-term signs of exhaustion are appearing in risk reversals, as the demand for protecting against GBP weakness has stalled. This week marks a bearish shift from a multi-month high. The momentum is neutral, with the Relative Strength Index (RSI) hovering around 50. If the Pound dips below the 200-day moving average (1.3393), it could drop further to the 50-day moving average (1.3304), with the current range being between 1.3380 and 1.3480. The Pound is struggling, showing weakness against most major currencies in this trading session. This trend follows preliminary data indicating a slight 0.1% contraction in the UK economy for the last quarter of 2025, raising concerns about future growth. This performance continues a mixed pattern that appeared toward the end of last year. The Bank of England seems to be leaning toward a dovish stance, especially since the latest inflation report showed the headline Consumer Price Index (CPI) dropped to 2.1% in December 2025. This reinforces doubts about how close the bank is to a neutral policy rate, making further tightening less likely. Next week’s MPC member appearances will be closely monitored for any changes in their messaging.

Recent Turn in Sentiment

The recent shift in sentiment presents a near-term risk, as the demand for protection against GBP weakness has stopped decreasing. Data from the first week of January shows that speculative short positions on the Pound have grown, indicating that sentiment is turning bearish. This marks the end of the optimism that had built up over the past couple of months. Given this environment, traders might think about buying GBP/USD puts with strikes below the crucial 200-day moving average around 1.3393. A clear break below this level could increase downward momentum toward the 50-day moving average at 1.3304. The bearish shift from the multi-month high seen near 1.3550 in late 2025 supports this cautious outlook. For those who believe the Pound will stay within the range of 1.3380 and 1.3480, selling out-of-the-money strangles could be a good way to profit from stable prices. However, this strategy carries risks, as any clear break below support could result in significant losses. Implied volatility remains moderate, showing that the market is currently indecisive. Create your live VT Markets account and start trading now.

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