The GBP has risen by 0.2% against the USD, continuing its upward trend thanks to positive feelings in the market and strong economic data. Recent figures for retail sales and the PMI have helped boost the British currency even more. The Bank of England’s upcoming policy decision is a key point of interest, with expectations that there will be no changes. However, worries about political developments, especially potential leadership challenges, pose a risk for the Pound.

Editorial Review for Accuracy

This article’s content was generated with AI assistance but has been reviewed for accuracy. The market factors and instruments discussed here are for informational purposes and should not be taken as investment advice. The Pound is still on the rise, fueled by strong economic signals. Reports from last Friday indicated that UK retail sales for December 2025 rose by an unexpected 0.8%, surpassing expectations. Additionally, the flash PMI for January was 53.1, showing healthy business growth. This solid strength suggests that the rally could continue. For traders confident in this momentum, buying call options on the GBP/USD might be a good choice to capture further gains. This strategy allows us to profit if the Pound strengthens beyond a certain price, with our risk limited to the premium paid. It’s a straightforward way to bet on the positive sentiment and strong data extending into February. However, we must also consider the significant political risks ahead. A potential leadership challenge to Prime Minister Starmer is creating uncertainty, especially since his approval ratings recently fell below 40%. We recall how political turmoil in autumn 2022 caused a sharp drop in the Pound, and any hint of instability might quickly undo current gains.

Political Risks and Market Volatility

This political risk is likely to increase volatility, making options more costly but also more valuable for hedging. Buying put options can help protect existing long positions from a sudden downturn due to political news. Traders expecting a dramatic move in either direction around a potential leadership vote may want to consider a long straddle strategy. The upcoming Bank of England meeting is unlikely to change interest rates, which will remain at 5.25% as inflation stays stubbornly around 2.5%. This suggests that the market will pay more attention to political developments than to monetary policy. Therefore, we need to weigh any positive economic sentiment against the real risk of a politically driven sell-off in the coming weeks. Create your live VT Markets account and start trading now.

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