The British Pound (GBP) softens against the US Dollar (USD) on a Wednesday shortened by US holidays. At the time of writing, GBP/USD is trading around 1.3500, slightly down from an intraday high of 1.3534, its strongest since mid-September.
The Pound Sterling revisits a three-month peak of 1.3535 against the USD in the European session. Despite US Q3 GDP data showing unexpected strength, this does not lessen the market’s anticipation of dovish Federal Reserve (Fed) moves in 2026.
Pound Sterling Trades Strongly
The GBP/USD pair remains positively traded near 1.3510 in early European trading. The Pound’s strength comes amid expectations of gradual monetary easing by the Bank of England (BoE) in 2026, pushing it past the 1.3500 mark.
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We are seeing the Pound hold strong against the Dollar, hovering around the 1.3500 level. Current trading is quiet due to the Christmas Eve holiday, but the underlying trend is driven by what we believe will be differing central bank paths. The market is increasingly betting that the Bank of England will be slower to cut interest rates in 2026 than the US Federal Reserve.
This view on the Bank of England is supported by the November 2025 inflation data, which showed UK CPI remaining sticky at 3.9%, well above the bank’s target. Consequently, the BoE held its policy rate firm at 5.25% in its December meeting, signaling any easing next year will be cautious. This policy stance should continue to provide a supportive floor for the Pound Sterling.
Federal Reserve And Market Trends
On the other side of the Atlantic, the Federal Reserve’s dovish stance is being reinforced by cooling price pressures. The latest core PCE inflation figures in the US for November 2025 came in at an annualized 3.2%, giving the Fed more flexibility to begin cutting rates. We expect this policy divergence to be the main driver for currency markets in the first quarter of 2026.
For derivatives traders, the low implied volatility during this holiday period presents an opportunity to position for next year. We believe purchasing GBP/USD call options with expirations in late March or April 2026 is a prudent way to gain exposure to further upside as liquidity returns. This setup is reminiscent of what we saw in the early 2020s, when central bank policy differences created sustained, tradable trends.
In the immediate coming days, however, traders should remain cautious of unpredictable price swings on low volume. Sharp moves are common between Christmas and New Year’s, and these do not always reflect the true underlying market sentiment. We would see any potential dips towards the 1.3400 handle as a strategic entry point for building positions for the new year.
