The GBP/USD currency pair has fallen again, marking eight days of consecutive losses. This drop follows an increase in US Consumer Price Index (CPI) inflation throughout June, prompting traders to rethink the Federal Reserve’s earlier expectations for interest rate cuts by the end of the year. After the new US inflation data was released, GBP/USD dipped below 1.3400, declining by 0.23%. This is the fourth day in a row that the pair has lost value amid growing concerns about tariffs pushing up prices.

Pound Sterling Under Pressure

The Pound Sterling is also facing challenges against the US Dollar, nearing a three-week low around 1.3430. Volatility is expected in the GBP/USD pair as traders await the latest CPI figures from the US. Meanwhile, USD/JPY remains close to its highest level since April, just shy of 149.00, boosted by a cautious market sentiment. Gold prices, typically seen as a safe haven, have seen a slight rebound, but their potential for further gains appears limited due to a strengthening US Dollar. In the cryptocurrency world, legislative advancements have hit a snag. Lawmakers have not made progress on three cryptocurrency-related bills, which has stalled development in this area. The market is starting to realize that the Federal Reserve is in no hurry to change its stance. With the recent core inflation data from the US indicating a stubborn year-over-year increase of 3.4%, discussions about multiple rate cuts in 2024 have faded. The CME FedWatch Tool now suggests only a 58% chance of a single cut by September, a significant shift from earlier predictions. We believe that the ongoing strength of the Dollar is the main driver for market movements in the upcoming weeks, and traders should adjust their strategies accordingly.

Monetary Policy Divergence

For those trading the Pound, the difference in monetary policies is widening. The Bank of England is dealing with UK inflation that has just reached the 2% target, increasing the likelihood that they will cut rates before the Fed does. This disconnect is a strong bearish signal for the currency pair. We see a chance to buy GBP/USD put options with strikes below the 1.3300 level, expecting further declines as this situation develops. Another option is to sell out-of-the-money call spreads to take advantage of the limited upside potential of the pair. Regarding the Yen, the situation is becoming tense. With the pair soaring past 159.00, we are entering a range where Japan’s Ministry of Finance has historically intervened to boost its currency. We remember the sharp declines in late April and early May after suspected interventions. While we remain long on USD/JPY due to the significant yield difference, the risk of a sudden reversal is high. Traders should protect long positions with tight stop-loss orders. A better approach may be to buy long straddles or strangles to benefit from a big volatility spike, whether it leads to a continued rise or a government-induced drop. The recent bounce in gold prices is likely just a temporary pause, not a new trend. Gold’s performance closely follows the US Dollar and real yields, both of which are currently unfavorable. As long as the US Dollar Index (DXY) stays above 105.5, gold will struggle to maintain any substantial gains. We advise traders to view any strength in gold as a chance to initiate short positions via futures or buy put options, countering the Dollar’s persistent strength. Finally, the digital asset space remains stuck in regulatory uncertainty. The initial excitement over the FIT21 bill passing in the House has diminished as it faces a challenging future in the Senate. This legislative stall is hindering the institutional investment that the sector requires for growth. Without a clear regulatory framework, we expect major cryptocurrencies to stay range-bound. This creates an ideal scenario for selling covered calls against existing holdings or for options sellers to collect premiums by selling out-of-the-money call and put spreads on Bitcoin and Ethereum, betting on sideways movement rather than a breakout. Create your live VT Markets account and start trading now.

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