GBP/USD saw an increase on the year’s first trading day, moving around 1.3470 during Asian hours on Friday. The daily chart analysis indicates a potential weakening of the bullish trend, as the pair hovers slightly below the ascending channel pattern’s lower boundary.
The nine-day Exponential Moving Average (EMA) is rising and positioned above the 50-day EMA, with the spot price holding above both. This indicates support for the bullish trend, as the short-term dynamics favour the upside. The configuration of moving averages also backs the upward movement as the medium-term average continues to rise.
US Monetary Policy Impact
The GBP/USD pair gains momentum, trading close to 1.3480 during the early Asian session on Friday. Speculation around US Federal Reserve rate cuts drags down the US Dollar, benefiting the British Pound. The Fed ended 2025 with its largest annual decline in eight years, with the markets expecting two rate cuts this year.
This divergence between US and UK monetary policies weakens the Dollar’s attractiveness. Currently, there is approximately a 15.0% probability that the Fed will reduce interest rates at its upcoming meeting in January.
We are seeing a continuation of the trend that began around this time last year, when bets on Federal Reserve rate cuts started to weigh heavily on the US dollar. The divergence between a dovish Fed and a more cautious Bank of England continues to be the main driver. This fundamental backdrop keeps the path of least resistance pointed upwards for GBP/USD.
Strategic Trading Considerations
This view is strengthened by recent data from the end of 2025, which saw US inflation cool to 3.2%, giving the Fed a clear runway to start easing policy. In the UK, however, inflation proved more stubborn, ending the year at a higher 3.9%, forcing the Bank of England to maintain its stance. This economic divergence adds credibility to continued dollar weakness against the pound.
Given this bullish momentum, we should consider buying GBP/USD call options with expirations in the next four to six weeks. This strategy provides direct exposure to any rally towards the three-month highs, while clearly defining our maximum risk to the premium paid. It is a straightforward way to position for the expected upward move.
For those wanting to lower the initial cost, a bull call spread is an attractive alternative. By buying a call option and simultaneously selling a higher-strike call, we can significantly reduce the net premium. This is a suitable strategy if we anticipate a steady, but not explosive, climb in the exchange rate.
Implied volatility in the pair is currently moderate, making options more reasonably priced than during the uncertain spikes we saw in mid-2025. Markets are now pricing in an over 80% probability of a Fed rate cut by March, which should keep a lid on any significant dollar rallies. This makes the environment favorable for establishing these bullish derivative positions.
