GBP/USD increased by 0.55% on Monday, continuing its two-day recovery. The pair maintains a bullish trend on the daily chart, trading above the 50 and 200 EMAs at 1.3507 and 1.3310, respectively.
The pair saw a notable pullback from January’s high of 1.3869 after the BoE held rates at 3.75% in a vote split. Monday’s session showed recovery, with the price climbing back to around 1.3695, forming a bullish candle above 1.3690.
Market Events And Indicators
Tuesday’s session has event risk from US Retail Sales and Employment Cost Index, followed by Fed speeches. The Stochastic Oscillator remains neutral, suggesting possible upside if momentum grows.
A push above 1.3700 could target resistance near 1.3770, with a stronger move aiming for 1.3870. Weaker US data may support the Pound, but strong Retail Sales or hawkish Fed remarks might lead to a retest of 1.3590.
The British Pound is the world’s fourth most traded currency, with trading pairs GBP/USD, GBP/JPY, and EUR/GBP. The BoE’s interest rate decisions impact GBP value based on inflation rates. Economic data, such as GDP and employment statistics, influence GBP, as does the Trade Balance indicator.
We’ve seen GBP/USD extend its recovery, holding above the critical 1.3690 level after a firm two-day rally. This follows the sharp decline from the January high of 1.3869, which was a direct reaction to the Bank of England’s surprisingly dovish 5-4 vote split. That meeting, where four members advocated for an immediate rate cut, has put a temporary ceiling on the pound’s potential.
Trading Strategies And Market Insights
The US data released this morning has provided a fresh catalyst for bulls. December’s Retail Sales came in at -0.2%, missing the +0.4% forecast, and the Q4 Employment Cost Index also showed a slower-than-expected 0.9% rise in wages. This weak data weighs on the dollar and gives the pound room to test resistance near 1.3770 ahead of the mid-week NFP print.
With the major NFP labor report still ahead this week, buying options is a prudent strategy to manage risk around the event. Implied volatility for GBP/USD weekly options has ticked up to 8.5%, reflecting the market’s anticipation of a significant price move. Traders could consider buying call options with a strike price above 1.3770 to play for a breakout, while still limiting downside risk to the premium paid.
The daily chart’s structure remains bullish as long as we hold above the 50-day EMA, currently sitting near 1.3507. We saw a similar setup back in the third quarter of 2025, where the 50-day EMA provided a solid floor for a multi-week rally. A failure to hold the 1.3600 level on any renewed dollar strength would signal a deeper correction, bringing that crucial moving average into focus.
It is worth noting that recent commitment of traders reports show that large speculators have trimmed their net long GBP positions for a second consecutive week. This suggests that while the trend is up, some of the bigger players are taking profits after the strong rally from the November 2025 lows near 1.2300. Lingering uncertainty around Prime Minister Starmer’s government could also re-emerge as a headwind if the focus shifts from US data back to UK fundamentals.
