Insights 
VT 
The Pound Sterling has risen by 0.6% against the US Dollar, outperforming most G10 currencies. This recent strength is attributed to robust domestic employment data and expectations of more easing from the Federal Reserve.
The UK-US spread has reached a new three-month high, exceeding 15 basis points for the first time since May. The Pound’s current performance has surpassed the 50-day moving average of 1.3503 and is nearing a breakthrough of the late July high in the upper 1.35 range.
Momentum Remains Strong
Momentum remains strong, with the Relative Strength Index (RSI) climbing above 60. There seems to be minimal medium-term resistance until it reaches the early July high in the upper 1.37 range, with expectations of a near-term range between 1.3500 support and 1.3620 resistance.
We see the current strength in the Pound Sterling as a direct result of diverging economic outlooks. The latest UK jobs report for July 2025 showed wage growth remaining surprisingly firm at 5.8%, putting pressure on the Bank of England to hold rates steady. This contrasts with the growing belief that the Federal Reserve is preparing to ease its policy.
The market is now pricing in a nearly 75% probability of a Fed rate cut at the September meeting, especially after US core inflation for July fell to a two-year low of 2.6%. This has widened the two-year UK-US yield spread, giving traders a clear fundamental reason to favour the Pound. The current move above the 1.3500 handle appears well-supported by this policy divergence.
Given the Strong Upward Momentum
Given the strong upward momentum, with the RSI indicator pushing above 60, buying call options is an attractive strategy for the next few weeks. We are looking at strikes near the 1.3700 level to target that early July high. Selling out-of-the-money puts below the 1.3450 level could also be an effective way to collect premium.
One-month implied volatility for GBP/USD has ticked up to 8.5%, which suggests the options market is expecting a decisive break of the immediate 1.3620 resistance. For those with existing short exposure, this would be a prudent time to hedge by buying calls to cap potential losses. Looking back, we saw a similar sharp rally in the second half of 2024 that caught many unprepared.
