The GBP/USD pair rose by 0.45% on Tuesday because of lower global US Dollar (USD) flows. The Dollar weakened as expectations grew for further Federal Reserve (Fed) rate cuts into 2026. This decline occurred even with stronger-than-expected US GDP growth of 4.3% in the third quarter. Market analysts believe the Fed will keep its current position in January but may start cutting rates later. However, they caution that the GDP growth mainly comes from healthcare spending and reducing inventories, indicating less overall economic strength. We see signs of a weakening job market and declining consumer confidence, which could keep pressure on the Dollar into next year.

Sterling Hits 12-Week Highs

The Sterling reached 12-week highs against the Dollar as the US Dollar Index (DXY) dropped to its lowest level since early October. This indicates a change in global rate expectations, suggesting the Dollar may experience its steepest annual decline since 2017. Wednesday is the last main trading day for GBP/USD this week, as US markets will close early and European markets will shut down on December 25 and 26. The Pound Sterling, issued by the Bank of England (BoE), is the official currency of the UK. Its value is affected by BoE’s monetary policy and economic indicators such as GDP and trade balance. A positive Trade Balance usually strengthens the currency. As today is December 24th, 2025, the market shows a clear path for GBP/USD heading into the new year. The US Dollar is weakening across the board, allowing the Pound to reach 12-week highs. This trend continues even in the light trading of this holiday-shortened week. This suggests we should adopt strategies that benefit from the Pound’s continued rise against the Dollar. Buying call options on GBP/USD with an early 2026 expiry appears to be a smart move. This allows us to capture potential gains while managing risk during low market activity.

Policy Divergence and Market Strategies

The data underlines the divergence in policies between the US and the UK. In the November 2025 inflation reports, US CPI decreased to 2.5%, while the UK’s remained at 3.8%, which is well above the BoE’s target. As a result, the CME FedWatch Tool reflects that the market expects two Fed rate cuts in 2026, while the Bank of England is likely to keep rates higher for longer. We need to stay cautious as holiday markets can lead to sudden, unpredictable moves on little news. We recall the GBP “flash crash” of October 2016, which happened during low liquidity. Thus, buying options with defined risk is a safer strategy than risking unlimited loss by selling them. The main idea behind this trade is the belief that the Federal Reserve will have to cut rates sooner and more aggressively than the Bank of England. The unexpectedly high 4.3% US GDP growth for the third quarter of 2025 is largely being overlooked, as the underlying details suggest a less robust economy. We think this focus on a slowing US economy will continue to put pressure on the Dollar. Since today marks the last significant trading day of the week, we should concentrate on positioning ourselves for January and February 2026. Purchasing longer-dated options allows us to ride out any potential holiday volatility. This lets us keep our bullish view on GBP/USD without being affected by erratic price movements over the next few days. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now