GBP/USD rose to about 1.3520 in early Asian trading on Monday as the US Dollar eased while tariff uncertainty continued. Markets are watching the US Producer Price Index (PPI) for January, due on Friday, with both headline and core PPI forecast at 0.3%.
On Friday, the US Supreme Court ruled that Trump’s tariffs were illegal and beyond his authority. Trump then imposed a 15% levy on imports, with Reuters reporting the replacement tariffs would run for 150 days and leaving unclear whether refunds are owed for duties already paid.
Uk Retail Sales Boost Sterling
UK data supported Sterling after Retail Sales rose 1.8% month on month in January, up from 0.4% previously and above the 0.2% forecast. Retail Sales increased 4.5% year on year, compared with 1.9% previously (revised from 2.5%) and above the 2.8% estimate.
Sterling is the UK currency, first issued in 886 AD, and it is the fourth most traded currency, making up 12% of FX transactions, or about $630 billion a day in 2022. Key shares include GBP/USD at 11%, GBP/JPY at 3%, and EUR/GBP at 2%.
We are seeing the pound build momentum above the 1.3500 level, a move that appears justified by both political uncertainty in the US and strong data out of the UK. This dual-force dynamic creates a compelling case for sterling strength in the immediate term. Traders should view the dollar’s weakness as the primary driver, directly linked to the confusion surrounding the new 15% import levy.
The pound’s strength is well-supported by fundamental data, with the Office for National Statistics recently confirming a powerful 3.4% surge in January retail sales, significantly beating expectations. This strong consumer activity eases pressure on the Bank of England to consider rate cuts, making the pound a more attractive currency to hold. Looking back at 2025, we saw how resilient UK consumer spending was, and this trend appears to be continuing.
Tariff Uncertainty Lifts Volatility
The real story for traders is the spike in uncertainty from the new 15% blanket levy, which is keeping the dollar on the back foot. We’re seeing this reflected in the options market, with one-month implied volatility for GBP/USD ticking up towards 7.5%, a level we haven’t seen since the market jitters of late 2025. This environment suggests that strategies profiting from price swings, rather than just direction, could be advantageous.
Attention now turns to the US Producer Price Index data this Friday, with consensus expecting a 0.3% monthly increase, consistent with figures seen in the last quarter of 2025. We remember how hotter-than-expected inflation prints consistently boosted the dollar, so positioning for a similar reaction seems prudent. A surprise to the upside could quickly erase the pound’s recent gains against the greenback.
Given the conflicting signals, a sensible approach is to use options to express a bullish view on the pound while managing Friday’s event risk. Buying call options on GBP/USD offers a way to profit from continued sterling strength, with the premium paid being the maximum potential loss if the US inflation data comes in hot. This defined-risk strategy allows for participation in the current upward trend without being overexposed to a sharp reversal.
