Pound Sterling rose by 0.55% on Monday, reaching 1.3690 against the US Dollar, which weakened due to rumors of intervention in the Japanese market and actions from the Federal Reserve. Despite positive data from the US, traders remained focused on the upcoming Federal Open Market Committee meeting in January. The Pound bounced back from a low of 1.3642. The British Pound demonstrated strength against North American currencies, thanks to strong UK economic indicators. The S&P Global Purchasing Managers’ Index and December Retail Sales boosted the GBP/USD above 1.3650 on Monday morning.

The European Session Rally

During early European trading, the GBP/USD pair hit its highest level since September 2025, trading around 1.3660. Expectations for the US November Durable Goods Orders report helped the British currency hold its ground, supported by the solid UK Retail Sales and PMI data. The FXStreet Team noted that these market movements happen quickly, so traders should conduct detailed research before making decisions. There are no guarantees in investing, and risks include the possibility of losing your entire investment. The current upward trend in GBP/USD breaking above 1.3650 presents a clear opportunity for bullish trades. We think buying call options with short expirations is a smart way to take advantage of this momentum, benefitting from the strong UK economy and a weakening US Dollar. This rally is supported by solid fundamentals, with the recent S&P Global UK Composite PMI reaching 52.1, its highest in seven months, and December 2025 retail sales showing surprising strength. This resilience makes it less likely for the Bank of England to consider rate cuts, thus supporting the Pound further, similar to the strength seen in late 2025.

Challenges for the US Dollar

Conversely, the Dollar’s weakness is growing ahead of the Federal Reserve’s decision this week. Current market pricing, as shown by the CME FedWatch Tool, suggests a greater than 70% chance of a rate cut in the next quarter, putting pressure on the Dollar. This sentiment is overshadowing recent positive US economic data. However, the upcoming FOMC meeting introduces significant risk. If the Fed takes a surprisingly hawkish stance, it could cause the Dollar to rise sharply and hurt over-leveraged long positions. We recommend buying inexpensive, out-of-the-money put options as a safeguard against potential downside. Implied volatility on GBP/USD options has increased, indicating market uncertainty around the Fed and potential intervention in the Japanese yen. This makes strategies like a long straddle attractive for those anticipating a significant price move in either direction after the announcement. Historically, periods of tension, like the currency swings in 2022, often lead to sharp and decisive adjustments. Create your live VT Markets account and start trading now.

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