The Pound Sterling slipped against the US Dollar during the North American session, as trading was quiet. US markets were closed for President’s Day, which reduced liquidity.
At the time of writing, GBP/USD was at 1.3635, down 0.12%, as traders looked ahead to UK CPI.
Quiet Trading Ahead Of UK Inflation Data
GBP/USD is again seeing quiet trading ahead of this week’s important UK inflation data. The pair is currently near 1.2750. This is similar to the thin trading we saw around this time in 2025, when GBP/USD hovered near 1.3635 before a major data release. Traders are waiting for a clear trigger.
Markets expect January CPI to come in at 2.9%, slightly lower than the prior month. If CPI is higher than expected, it would weaken the view that the Bank of England can cut rates further, which could support the pound. If inflation drops sharply, it could increase expectations for rate cuts and weigh on the currency.
This uncertainty has pushed up one-week implied volatility in GBP/USD options to 8.5%. A similar setup played out in late 2024, when a surprise inflation reading triggered a 150-pip move in GBP/USD within hours. As a result, traders are pricing in a higher chance of a sharp move in either direction.
Options Positioning For Volatility
In response, we are using options strategies that aim to benefit from higher volatility, rather than betting on a single direction. Long straddles and strangles are popular choices because they can profit from a large move, whether CPI surprises higher or lower. This approach helps manage risk while preparing for the market reaction to the inflation data.
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