GBP/USD rose more than 0.23% on Friday and traded near 1.3494. The move came after a US Supreme Court ruling that blocked Donald Trump’s tariffs under the IEEPA without approval from Congress. That decision pressured the US dollar. US data showed Q4 2025 GDP slowed to 1.4% year on year, down from 4.4%. The slowdown was linked to disruption from a 43-day government shutdown. US core PCE inflation rose to 3% year on year in December, above the 2.9% forecast and the prior 2.8%.

Tariff Ruling Drives Dollar Dip

After the ruling, the US Dollar Index (DXY) fell 0.14% to 97.67. US officials, including Treasury Secretary Scott Bessent, said the administration would look for other legal options to keep as many duties as possible. UK Retail Sales rose 4.5% in January, above the 2.8% estimate, according to ONS data. February S&P flash PMIs showed growth in both services and manufacturing. UK unemployment also rose in Q4 2025. Money markets priced an 80% chance of a Bank of England rate cut in March. The first Federal Reserve cut was pushed back to June. On the charts, GBP/USD traded around 1.3498, with resistance near 1.3530. The FXS Fed Sentiment Index was 114.93. The Supreme Court ruling gave GBP/USD a short-term boost, but we see it as a chance to prepare for a pullback. US data from late 2025 showed a stagflation-like mix: slower growth and still-high inflation. That makes the Fed’s next steps harder and can support the dollar against currencies backed by more dovish central banks.

Monetary Policy Divergence Builds

The main driver for us is the widening gap in monetary policy. The Bank of England is facing rising unemployment and is widely expected to cut rates in March to support a weak economy. By contrast, the Fed is dealing with core inflation at 3%, which gives it reason to delay any cuts until at least June. This setup looks like past periods of policy divergence, such as 2022, when the Fed raised rates faster than the BoE and the dollar strengthened. Recent UK data fits that pattern. GDP in the second half of 2025 grew just 0.1%, pointing to an economy close to recession. That raises the odds of a BoE cut next month, which would likely weigh on the pound. In the US, the inflation details matter most. Core services inflation, which the Fed tracks closely, stayed high and ran at an annualized pace above 4% last month. This persistence supports a patient Fed and keeps the dollar’s yield advantage over sterling in the months ahead. For derivatives traders, this argues for buying downside protection in GBP/USD. One-month risk reversals, which show the pricing gap between puts and calls, have turned negative. That suggests the options market is leaning toward a dip. We see value in buying GBP/USD puts that expire after the March Bank of England meeting. Technically, the key level is resistance near 1.3530. If the pair cannot break and hold above that area, we would treat it as a chance to open bearish positions. Our base case is a move lower toward rising trendline support near 1.3400 as the policy gap becomes the market’s main focus. Create your live VT Markets account and start trading now.

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