GBP/USD traded near 1.3350 on Tuesday and stayed on an upward path. The move came as market participants reduced exposure to the US Dollar ahead of the Federal Reserve policy decision on Wednesday.
Attention is also on upcoming Bank of England decisions. Traders are watching how Fed and BoE policy signals may affect the pair.
We recall that period in March 2025 when sentiment for the pound was bullish against the dollar, pushing the pair toward the 1.3350 level ahead of central bank meetings. The market was anticipating a favourable outcome for sterling from the Bank of England (BoE). However, the Federal Reserve’s subsequent hawkish stance proved stronger, causing the pair to retreat from those highs throughout the second quarter of 2025.
Fast forward to today, March 17, 2026, the situation presents a different dynamic for traders. The UK’s latest CPI data came in stubbornly high at 3.4%, well above the BoE’s target, while recent US inflation has cooled to 2.9%. This divergence is putting pressure on the Bank of England to maintain its restrictive policy for longer than the Federal Reserve.
This policy difference suggests potential upside for GBP/USD from its current level of around 1.2850. Derivative traders should consider positioning for pound strength, as the market is now pricing in a 65% chance of a Fed rate cut by September while expecting the BoE to hold rates steady. A viable strategy could be buying GBP/USD call options with strike prices around 1.3000 to capture potential gains if this policy divergence continues.
Traders should also note the elevated implied volatility in the options market, which currently stands at 9.8% for 3-month contracts. This indicates that the market is expecting significant price swings around upcoming data releases and central bank announcements. Therefore, while buying calls offers defined risk, the higher premiums must be factored into any strategy’s potential profitability.
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