The GBP/USD began Tuesday’s session on a positive note amidst a sell-off in the US Dollar, trading at 1.3463, up 0.30%. The movement follows escalating trade tensions involving the US, Europe, and Greenland, which have affected market sentiment.
During the European session, the Pound Sterling rose close to 1.3490 against the US Dollar. This rise extended previous gains and was attributed to deteriorating relations between the US and the EU.
Market Focus
In the early Asian session on Tuesday, GBP/USD traded around 1.3430, staying steady as the market awaited UK labour data. Focus later shifts to UK Consumer Price Index and Retail Sales figures due in the week.
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The CBOE Volatility Index holding at yearly highs is a clear warning sign for the markets. We saw similar spikes during the trade disputes of 2025, where the VIX briefly touched 40, leading to sharp market sell-offs. Therefore, buying VIX call options or puts on the SPY provides a direct hedge against this escalating geopolitical risk.
Investment Strategy
The pound’s strength against the dollar looks set to continue as the “Sell America” theme deepens. We believe buying call options on GBP/USD with an eye on the 1.3500 level is a sound strategy to capture further upside. This view is supported by the persistent US trade deficit, which we noted widened to over $70 billion per month in late 2025, creating a fundamental headwind for the dollar.
Gold’s smash through $4,750 is not just a reaction to tariffs but a broader move away from US assets. This reflects a trend we observed throughout 2025, where central banks globally increased their gold reserves at a record pace, moving away from the dollar. Long positions through gold futures or call options on gold ETFs remain our preferred play for this flight-to-safety.
