The Pound Sterling traded below 1.3700 and fell 0.2% during the North American session on Tuesday. GBP/USD was at 1.3660 after reaching a daily high of 1.3700.
The move came as the US dollar cut earlier losses following weaker-than-expected US data. The pair also faced pressure from political uncertainty in the UK.
Shifting Dynamics In Favor Of The Dollar
We saw a similar setup a few years back when GBP/USD fell below 1.3700 due to a mix of weak US data and UK political issues. Now in February 2026, the dynamic appears to be shifting, which presents a different opportunity for the pair. The key drivers are diverging again, but this time in the dollar’s favor.
The United States economy is showing unexpected strength, unlike the period of weakness we observed through parts of 2025. January’s non-farm payrolls just came in strong at over 280,000 jobs, and the latest CPI data showed inflation ticking back up to 3.5%. This data makes it less likely the Federal Reserve will consider further rate cuts, providing a firm floor for the dollar.
Meanwhile, the Sterling is facing headwinds from domestic uncertainty over the new government’s first full budget. With UK inflation proving stubborn at 2.8% and last quarter’s GDP growth coming in flat, the Bank of England is caught between fighting inflation and stimulating a stagnant economy. This policy paralysis is likely to weigh on the pound.
This divergence points to a bearish outlook for the GBP/USD pair heading into March. Traders should consider buying put options with April expiration dates to capitalize on potential downside movement. This strategy defines your risk to the premium paid while offering exposure to a drop in the exchange rate.
Options Strategy Amid Rising Volatility
The political situation in the UK coupled with the surprisingly robust data from the US could also increase market choppiness. This environment makes options attractive, as an increase in implied volatility would benefit holders of long puts or calls. We see a greater probability of a move down toward the 1.2200 level we saw in late 2025 than a break higher.
