GBP/USD rose as risk sentiment improved following de-escalation of US-Europe trade tensions. President Trump’s deal with NATO regarding Greenland, preventing tariffs on European countries, contributed to easing fears.
Despite strong US GDP and jobs data, the Dollar did not benefit as expectations for Federal Reserve easing remained. Q3 GDP grew by 4.4% annually, while initial jobless claims were lower than forecasted at 200K, with continuing claims decreasing to 1.849 million.
Us Dollar Index Performance
The US Dollar Index fell 0.25% to 98.55, with traders predicting further rate cuts. Across the Atlantic, UK economic events are sparse, although recent data showed increased inflation but softer jobs data, prompting potential interest rate cuts by the Bank of England.
Upcoming UK Retail Sales and US PMI and Consumer Sentiment data are anticipated as future market movers. Technically, GBP/USD remains consolidated with resistance and support levels identified at 1.3500 and 1.3341 respectively.
The Pound Sterling is the UK’s official currency and one of the most traded globally. Its value is influenced by the Bank of England’s monetary policy, economic data releases, and trade balance outcomes. Positive economic indicators tend to increase Sterling’s value by attracting more investments and potentially encouraging interest rate hikes by the BoE.
We are seeing a clear improvement in risk appetite, driven by the de-escalation of the trade conflict between the US and Europe. This positive sentiment is lifting the GBP/USD pair, pushing it towards the 1.3500 resistance level. For now, this broader market mood is overpowering the specific economic fundamentals of either country.
Fed Rate Cut Expectations
The US Dollar is failing to gain ground despite robust economic figures from the end of last year, such as the 4.4% Q3 GDP growth. This is because the market is firmly convinced the Federal Reserve will begin cutting interest rates soon. Expectations for looser monetary policy are outweighing the strong economic performance we saw in 2025.
To make this more concrete, we can see that interest rate futures markets are currently pricing in a greater than 70% probability of a Fed rate cut by the March meeting. Traders are anticipating at least 40 basis points of total easing by the end of this year. This widespread expectation is the primary reason for the dollar’s current weakness.
On the sterling side, the situation is more complicated, as the Bank of England faces its own decision on interest rates. While a softer jobs report from last year could justify a rate cut, recent data showed UK inflation remains elevated near 4.0%, which is double the BoE’s target. This policy conflict creates underlying uncertainty for the pound, even as it rallies against the dollar.
Given this setup, we should consider buying call options on GBP/USD with strike prices near the 1.3500 psychological level. This strategy allows us to capture further upside if the positive momentum continues through upcoming US data releases. It also caps our potential losses if the forthcoming UK retail sales figures are weak and cause a reversal.
Those with a higher risk appetite could take long positions in futures contracts, but we must use the 200-day moving average at 1.3406 as a key support level. Historically, a decisive break below such a long-term average often signals a trend reversal. Therefore, a drop below this point would be our signal to exit long positions.
Looking ahead, the US Flash PMI and Consumer Sentiment reports will be the next major catalysts. Any signs of economic weakness in these reports would reinforce the market’s belief in imminent Fed rate cuts. This would likely add more fuel to the GBP/USD rally, potentially pushing it towards the next resistance at 1.3567.
