UOB Group’s Forex analysts predict a chance for the GBP to test 1.3355, with the next support at 1.3315 seen as unlikely to be breached soon. In the longer term, GBP’s outlook is negative, with potential declines to 1.3355 and 1.3315.<\/p>\n
On Friday, the Pound Sterling remains fragile against the US Dollar, hovering near a four-week low around 1.3360 during the European session. The US Dollar maintains strength amid expectations of the Federal Reserve pausing its monetary-easing campaign in an upcoming meeting, with the US Dollar Index holding gains near a six-week high of 99.50 reached on Thursday.<\/p>\n
Looking back to this time in 2025, we saw a fragile Pound Sterling struggling to hold above 1.3400 against a strong US dollar. The prevailing view was negative, with a focus on potential drops toward the 1.3315 support level. This was driven by solid US economic data and expectations that the Federal Reserve would hold rates firm.<\/p>\n
The situation has changed significantly over the past year. Today, we are seeing the opposite dynamic, with recent US data showing a slowdown while UK inflation remains a primary concern for the Bank of England. The latest UK Consumer Price Index data for December 2025 came in at 3.1%, which was higher than forecast and puts pressure on the central bank to maintain its restrictive stance.<\/p>\n
This divergence in economic outlook suggests traders should reconsider bearish positions on the pound. The US labor market has also softened, with the last Non-Farm Payrolls report of 2025 showing job creation falling below 150,000, fueling speculation of Federal Reserve rate cuts in the first half of this year. Therefore, put options on GBP\/USD that were attractive a year ago now carry significantly more risk.<\/p>\n
Given this environment, derivative traders should look at strategies that benefit from potential pound strength or sustained volatility. Buying call options on GBP\/USD could capture upside movement if the Bank of England remains more hawkish than the Fed. This is a direct reversal of the sentiment we observed in early 2025.<\/p>\n
Another approach involves using options to trade the expected increase in price swings as central bank policies diverge. With the Federal Reserve signaling a potential pivot and the Bank of England holding firm, implied volatility in the pair has risen to its highest level in three months. This makes strategies like long straddles potentially profitable, as they benefit from a large price move in either direction.<\/p>\n
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