GBP/USD slipped after two days of gains and traded near 1.3480 in Asian hours on Tuesday, as the US Dollar rebounded after two sessions of losses. Attention later turns to the US ADP Employment Change four-week average and speeches from Federal Reserve officials.
The Dollar has also faced pressure as foreign investors reduce exposure to US assets amid trade uncertainty. The Wall Street Journal reported the Trump administration is weighing new national security tariffs under Section 232 of the Trade Expansion Act of 1962, separate from a 15% global tariff announced on Saturday.
Market Drivers And Policy Signals
Fed official Christopher Waller said any support for a March rate cut depends on February labour data. Swaps price a 5% chance of a 25-basis-point cut in March and about 50 bps of easing in 2026.
Sterling remained weak as markets expect the Bank of England could start cutting rates as early as March, linked to softer labour conditions and easing inflation. MPC member Alan Taylor said inflation is expected to return to the 2% target and backed further near-term cuts.
The pound dates back to 886 AD and is the UK’s currency. It is the fourth most traded, making up 12% of FX, or $630 billion daily (2022), and key pairs include GBP/USD (11%), GBP/JPY (3%), and EUR/GBP (2%).
With the Bank of England signaling a potential rate cut as early as March, the divergence in monetary policy between the UK and the US is becoming more pronounced. Recent data showing UK inflation falling to 2.3% in January and Q4 2025 GDP growth at a sluggish 0.1% solidifies our view that the BoE will act sooner than the Fed. This fundamental pressure suggests GBP/USD has more room to fall in the coming weeks.
Trade Ideas And Key Risks
Given this outlook, we see value in strategies that profit from a decline in the pound. Buying GBP/USD put options with an April expiry would capture the potential move following the March central bank meetings. For those with a slightly less bearish view, establishing a put spread, such as buying a 1.34 put and selling a 1.32 put, could offer a lower-cost way to position for a downward drift.
The main risk to this bearish stance is the uncertainty surrounding US trade policy, which could weaken the dollar unexpectedly. We are seeing this risk reflected in implied volatility, which has ticked up to around 8.5% for three-month options. This elevated premium makes selling volatility an option, but it requires careful risk management given the unpredictable nature of tariff announcements.
This situation feels very different from the sentiment we saw in late 2025, when hopes for a stronger UK recovery kept the pair supported above 1.3600. Now, with the Federal Reserve remaining data-dependent on the back of a solid January jobs report that added 225,000 positions, the path of least resistance for Cable appears lower. The key event to watch will be the February US labor data, which will heavily influence the Fed’s March decision.
Therefore, traders should be positioned for further weakness below the 1.3500 level. We believe that using options to define risk is the prudent approach in this environment. Any rallies back toward 1.3500 could be seen as opportunities to initiate fresh bearish positions, targeting a move towards the 1.3350 support area.
