GBP/USD Range Trading Phase
UOB Group’s FX analysts, Quek Ser Leang and Peter Chia, suggest GBP/USD is in a range-trading phase. There is potential for a rebound to test 1.3495 before a pullback, but 1.3520 is unlikely to be challenged soon.
Previously, GBP fell to 1.3393 last Friday with expectations that it would not break below the major support of 1.3370. However, it sharply rebounded, reaching a high of 1.3486. The GBP’s firmness against the USD continues as the market prepares for the US CPI data, which will influence future market direction and Federal Reserve strategies.
We are seeing the Pound hold firm around 1.3470 against the Dollar ahead of the critical US CPI data. Given the Federal Reserve’s recent emphasis on labor market risks, this inflation print might not immediately shift their stance. The strong December 2025 Non-Farm Payrolls report, which added 210,000 jobs, reinforces the view that the Fed is content to watch how the economy absorbs last year’s tightening.
For the coming weeks, this suggests a range-bound environment, making it a challenging market for simple directional bets. We should consider strategies that benefit from this stability, such as selling short-dated options strangles outside the expected 1.3370 to 1.3520 range. This approach capitalizes on the pair staying within these key technical levels.
US CPI Impact on Market Strategies
However, we must watch for any surprises in the US CPI, which is forecast to be around 3.1% year-over-year. A significantly higher number could challenge the Fed’s patient stance and cause a sharp move, breaking the recent range we saw develop in late 2025. Purchasing cheap, out-of-the-money call options on the pair could be a prudent way to hedge against such a volatility spike.
On the Sterling side, the UK’s own inflation remains a concern, with the last reading for December 2025 hitting a stubborn 4.2%. This divergence in inflation could keep the Bank of England on a more hawkish path compared to the Fed. This fundamental tension supports the idea of a contained but tense trading range for GBP/USD in the near term.
