GBP/USD increased as investors felt more optimistic after US-Europe trade tensions eased. President Trump’s agreement with NATO over Greenland helped reduce fears of tariffs on European countries. Although US GDP and job data were strong, the Dollar didn’t benefit. Expectations for the Federal Reserve to ease monetary policy continued to linger. The Q3 GDP grew by 4.4% annually, while initial jobless claims were lower than expected at 200K, and continuing claims dropped to 1.849 million.

US Dollar Index Performance

The US Dollar Index fell by 0.25% to 98.55, as traders anticipate more rate cuts. Over in the UK, economic news is limited. Recent data showed higher inflation but weaker job numbers, raising the possibility of interest rate cuts by the Bank of England. Upcoming UK Retail Sales, US PMI, and Consumer Sentiment data are expected to influence the market. Currently, GBP/USD is consolidated with resistance at 1.3500 and support at 1.3341. The Pound Sterling is the UK’s official currency and one of the most traded currencies worldwide. Its value is shaped by the Bank of England’s monetary policy, economic data, and trade balance. Positive economic news usually boosts Sterling’s value by attracting investors and could lead to higher interest rates from the BoE. There is a clear rise in risk appetite due to the easing of the US-Europe trade conflict. This positive atmosphere is supporting GBP/USD, pushing it closer to the 1.3500 resistance level. For now, this overall positive sentiment outweighs the specific economic factors of either country.

Fed Rate Cut Expectations

Despite strong economic data from late last year, like the 4.4% Q3 GDP growth, the US Dollar is struggling. Traders strongly believe that the Federal Reserve will start lowering interest rates soon. The anticipation of looser monetary policy is overshadowing the solid economic performance we recorded in 2025. To clarify, current interest rate futures show over 70% chance of a Fed rate cut by March. Traders are expecting at least 40 basis points of total easing by the end of the year. This expectation is a key reason for the dollar’s weakness. For the Pound, the situation is more complex, as the Bank of England faces its own interest rate decisions. A weaker jobs report could support a rate cut, but recent data indicates UK inflation is close to 4.0%, which is double the BoE’s target. This creates uncertainty for the pound, even as it gains against the dollar. In this context, buying call options on GBP/USD near the 1.3500 level could be beneficial. This strategy allows us to take advantage of potential gains if positive momentum continues after upcoming US data releases. It also limits potential losses if UK retail sales data is disappointing and leads to a reversal. Those willing to take a higher risk might consider going long on futures contracts, but it’s crucial to use the 200-day moving average at 1.3406 as a support level. Historically, breaking below this average signals a trend reversal. Thus, dropping below this point would indicate a need to exit long positions. Looking forward, the US Flash PMI and Consumer Sentiment reports will be significant catalysts. Any signs of economic weakness in these reports could strengthen the market’s belief in imminent Fed rate cuts, likely boosting the GBP/USD rally and pushing it toward the next resistance at 1.3567. Create your live VT Markets account and start trading now.

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