The British pound has been falling against the US dollar for four straight days, dropping a total of 1.5%. Currently, GBP/USD is trading at 1.3338, down 0.10% today, and reached its lowest value since May 19 at 1.3315. UK inflation is rising, according to the British Retail Consortium Shop Price Index, which went up to 0.7% in July from 0.4% in June. This is higher than the expected 0.2%. After a small rebound, GBP/USD traded just above 1.3350 after dipping below 1.3320 earlier, indicating that it might be oversold and could correct soon. The US dollar has gained strength as worries about a US economic downturn have eased. This improvement comes after a trade agreement with the EU, which includes a 15% tariff on goods. On Monday, GBP/USD remained lower, trading just above 1.3400. Its technical outlook suggests a continued bearish trend. The dollar’s strength is supported by a $600 billion investment into the US from the EU and a strong US jobs report, which showed that non-farm payrolls added 250,000 jobs in July. These developments have reduced fears of a US economic slowdown, making the dollar more attractive. The pound’s prior losses against the dollar have not reversed, leading to a challenging short-term outlook for GBP. With the British pound now at 1.3338 against the dollar, we see this as a lasting trend rather than a temporary drop. The strong US economy, backed by the new trade agreement with the EU, supports the dollar’s strength. For traders in derivatives, this signals a clear bearish outlook for the GBP/USD pair in the coming weeks. Despite rising inflation, the UK’s situation looks less favorable. The British Retail Consortium’s report showing a 0.7% increase in prices may make the Bank of England cautious, especially since the UK’s latest Q2 GDP showed a slight contraction of 0.1%. This could cause the central bank to hesitate in raising rates aggressively, putting further pressure on the pound. As a result, we recommend buying put options on the GBP/USD pair that expire in late August or September. Strike prices below 1.3300, like 1.3250 or 1.3200, are appealing for capitalizing on further declines. This strategy limits risk to the premium paid for the options. For those worried about a possible short-term bounce from oversold conditions, a bear put spread is a sensible alternative. This strategy involves buying a put option with a higher strike price, such as 1.3300, and selling another at a lower strike, like 1.3150. This reduces the initial cost of the trade while still allowing for profit from a price drop, although with limited upside. Historically, different monetary policies between the US Federal Reserve and other central banks have led to long-lasting currency trends, like the pound’s decline following the 2016 Brexit referendum. In the current climate, where the US economy seems stronger, this scenario favors the dollar for a prolonged period. We will closely monitor future US and UK inflation and employment data to confirm this ongoing divergence.

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