The GBP/USD rose by 0.42% to 1.3432 due to weak US Nonfarm Payroll (NFP) data and flat Retail Sales. The US Dollar struggled as the Unemployment Rate increased to 4.6%, missing expectations for a rise in Retail Sales. This mixed economic data raised expectations for a 92% chance of a Bank of England rate cut. The GBP gained strength from the weaker Dollar. Analysts predict the Bank Rate will drop from 4% to 3.75%.

Sterling’s Rise and US Jobs Data

Sterling strengthened as US jobs data showed November NFP at 64K, which was better than expected but still reveals some weaknesses. Retail Sales in the control group rose by 0.8%, indicating some resilience in consumer spending. Technical analysis shows that the uptrend for GBP/USD is still strong, with potential resistance at 1.3471 and support around the 100-day SMA at 1.3369. The British Pound also performed well against major currencies, notably increasing by 0.38% against the US Dollar, according to the currency heat map. The disappointing US jobs report from November indicates that the US Dollar is facing serious challenges. The unemployment rate’s rise to 4.6% and stagnant retail sales signal a slowing US economy. This view was reinforced by last week’s US CPI data that showed inflation cooling faster than expected, now at 2.8%. This increases the likelihood that the Federal Reserve may consider easing measures. The dollar’s weakness is a major market driver right now, providing several opportunities against it. The US Dollar Index (DXY) is dropping below the 98.00 mark, a key support level that has held for months. We expect this trend of dollar selling to continue into the new year, especially since futures now suggest a strong chance of rate cuts by mid-2026.

The Complex Situation for Sterling

For Sterling, the outlook is complicated. The Bank of England will likely cut rates this Thursday, with a widely anticipated reduction of 25 basis points from 4.00% to 3.75%. This expectation seems already priced into the market, leading to a situation where the Dollar’s weakness overshadows the Pound’s own domestic issues. This dynamic is reminiscent of conditions we saw in 2019 before the Fed began its easing cycle. For traders dealing in derivatives, buying call options on GBP/USD could be a smart move. This strategy allows us to benefit if the Dollar drops further toward the 1.3500 level, while limiting our risk before the Bank of England’s announcement. We should consider options that expire in late January 2026 to allow time for the trade to develop beyond short-term price fluctuations. The contrasting signals of a slowing US economy versus a rate-cutting UK are increasing currency volatility. The Cboe British Pound Volatility Index (BPVIX) has increased by over 15% in the last month, indicating that traders expect bigger price movements. In this environment, strategies like long straddles could be beneficial, especially around the BoE decision on Thursday, allowing us to profit from significant price shifts in either direction. We need to be careful, as any unexpected hawkish stance from the Bank of England could trigger a rapid rebound in the Pound. Key support levels for GBP/USD are around 1.3400 and the 100-day moving average just below that. It is crucial to set stop-losses or consider put options to manage risk below these levels if market sentiment changes suddenly. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now