The GBP/USD pair has risen as Trump’s tariff threats against Europe put pressure on the US Dollar. Trump announced a 10% tariff on eight European countries, starting from February 1. If no agreement is made, this tariff will increase to 25% by June 1. In response, the EU and UK are considering possible retaliatory measures. The US Dollar is feeling the impact, with the US Dollar Index falling by 0.38% today. The GBP/USD is trading at 1.3414, up 0.28%, due to a general weakening of the US Dollar and growing geopolitical uncertainties.

UK and US Economic Data

This week, traders are looking out for UK and US economic data, including employment and inflation figures from the UK. Technical analysis suggests that the GBP/USD could recover if it closes above the 200-day Simple Moving Average at 1.3400. If it falls below this level, we may see further losses, with support levels around 1.3325 and 1.3300. The Pound Sterling is showing mixed results against major currencies, performing well against the Canadian Dollar. The market is focused on geopolitical events, such as President Trump’s speech at the World Economic Forum and ongoing tariff discussions, which could affect currency movements and investor feelings. The US Dollar’s sharp drop following the tariff news is a key signal right now. This impact seems to be driven mainly by geopolitical factors, overshadowing recent economic fundamentals. We can expect that any risks from social media and official statements will continue to influence short-term currency fluctuations. We should anticipate a significant increase in implied volatility across currency pairs, especially in GBP/USD and EUR/USD options. This trend is similar to previous spikes, such as when the Cboe Volatility Index (VIX) rose over 40% within days during trade tensions in August 2019. Buying options now, before volatility is fully reflected in prices, could be a smart way to prepare for the uncertainty around the February 1 tariff deadline.

Buying Call Options

With GBP/USD staying above the important 1.3400 level, purchasing call options is a straightforward way to benefit from its upward momentum. A bull call spread around 1.3400, targeting the January high of 1.3567, would be a cost-effective strategy to profit if the pound continues to strengthen. This method also limits our risk in case the dollar suddenly changes direction. The upcoming UK jobs and inflation data will be crucial for the Pound’s strength. It’s important to note that UK inflation in the final quarter of 2025 remained stubbornly above the Bank of England’s target, close to 3.1%. This situation makes additional rate cuts less likely compared to the Federal Reserve. A strong data release this week could further boost the GBP/USD. President Trump’s speech in Davos is the main event to watch, as it could either ease tensions or escalate them. For traders who are unsure of the market direction but expect a major movement, a long straddle on GBP/USD could be a useful strategy. This position would benefit from a significant price shift in either direction after the speech. The overall weakness of the dollar also presents opportunities outside of the pound. The Swiss Franc and Japanese Yen are holding their ground against the dollar during this time of uncertainty. We need to keep an eye on communications from the EU and UK for signs of coordinated retaliation, which could add further pressure on the greenback. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now