GBP/USD is trading around 1.3420 during the Asian session on Monday, continuing its second consecutive session of losses. The daily chart shows the 14-day Relative Strength Index (RSI) at 53, suggesting momentum has eased but retains a slight bullish inclination above the midline.
The nine-day Exponential Moving Average (EMA) remains above the 50-day EMA, indicating a bullish tendency as the price consolidates below the short-term average while staying above the medium-term line. The nine-day EMA has flattened, pausing the short-term trend, yet the rising 50-day EMA supports the broader trend advance.
Current Market Dynamics
GBP/USD opens with a slight bearish gap and trades just below the mid-1.3400s, showing a daily decline of 0.10%. Spot prices, however, do not see significant follow-through selling, maintaining support above last week’s swing low amid mixed fundamental influences.
Geopolitical tensions, such as the prolonged Russia-Ukraine conflict and unrest in the Middle East, intensify with the US military action in Venezuela. These concerns drive safe-haven demand for the US Dollar (USD). This benefits the USD Index, which tracks the Greenback against several currencies, aiding its recovery from recent lows and applying pressure on the GBP/USD pair.
We are looking back at the situation in late 2025 when GBP/USD was trading around 1.3420. The technical picture showed a modest bullish bias, with the nine-day EMA above the 50-day EMA, but momentum was clearly fading as indicated by the RSI cooling off. This suggested to us that while the broader uptrend was intact, a period of consolidation or a small pullback was likely.
That climb to the 1.34s during 2025 was significant, especially after the pair spent most of 2024 trading in a range between 1.25 and 1.28. The strength was largely driven by UK inflation proving stickier than in the US, leading markets to believe the Bank of England would hold interest rates higher for longer than the Federal Reserve. The geopolitical tensions mentioned, including the Venezuela situation, were creating dollar demand that capped the pound’s advance at that time.
Strategic Considerations
In that late 2025 environment, the signal for derivative traders was to protect against a short-term drop without betting against the longer-term uptrend. This pointed towards buying near-term put options to hedge long positions or employing a covered call strategy to generate income, capitalizing on the view that the nine-day EMA would act as a barrier. The expectation was a shallow pullback, not a full trend reversal.
Now, in the first week of January 2026, fresh data supports the view that the pullback was a buying opportunity. The latest UK inflation figures for December 2025 came in slightly higher than expected at 3.2%, while last week’s US jobs report showed a slowdown in wage growth. This reinforces the interest rate differential theme that favors the pound sterling over the dollar.
For the coming weeks, this strengthens the case for renewed upward momentum in GBP/USD. Traders should consider adjusting their positions to reflect a more bullish outlook, potentially by closing out protective puts or rolling covered calls to higher strike prices. The focus now shifts to targeting a move above the old highs from late 2025.
