The British Pound (GBP) rose against the US Dollar (USD) on Friday, bouncing back from a two-day decline and settling around 1.3393. This increase comes after the currency hit a seven-week low of 1.3324 on Thursday. Before the release of the US Personal Consumption Expenditure (PCE) data for August, GBP traded carefully near 1.3330 against the USD. The PCE data, expected at 12:30 GMT, was likely to affect market behavior.

The Pound’s Stability

Despite earlier losses, GBP/USD held steady at about 1.3350 in the Asian market on Friday. The Pound’s stability could be linked to UK inflation risks and the uncertain stance of the Bank of England (BoE), which may impact future performance. As GBP/USD tries to recover, market participants should stay alert and informed. It’s important to do thorough research before making financial decisions, as foreign exchange trading carries risks. The views shared in this article are not investment advice; readers should seek independent guidance if necessary. The US dollar is losing strength following the latest PCE data, allowing the Pound to bounce back from its seven-week low. We are observing GBP/USD moving towards the 1.3400 mark as markets adjust their expectations for a more cautious Federal Reserve, suggesting a possible short-term change in market trends. Recent figures show that US Core PCE for August 2025 stands at 2.6% year-over-year, remaining above the Fed’s 2% target. Persistent inflation, coupled with declining manufacturing data from the recent ISM report, places the Fed in a tough spot. The market is leaning toward the idea that the central bank will focus on growth rather than combating this lingering inflation.

UK Inflation Challenges

In the UK, the Bank of England is also facing challenges. The most recent Consumer Price Index for August 2025 unexpectedly rose back to 2.9%. This uptick in domestic inflation creates uncertainty about the BoE’s next steps and explains why the Pound struggled before the dollar’s recent weakness. We’ve observed persistent inflation like this before, especially during the post-pandemic recovery period of 2023-2024. With these conflicting pressures at play, we can expect increased volatility in GBP/USD in the weeks ahead. Implied volatility on one-month options has already risen to 8.2%, indicating market uncertainty about both central banks’ policies. Traders might want to consider buying straddles to benefit from potential price swings, regardless of direction. For those believing that US dollar weakness will prevail, purchasing GBP/USD call options with an expiry at the end of October offers a defined-risk opportunity to gain further upside. Additionally, selling covered calls against existing long positions may be a smart strategy to generate income while providing a small buffer against a potential reversal, taking advantage of the high option premiums. Let’s remember the sharp dollar rally in early 2024 when the market had prematurely expected numerous Fed rate cuts that didn’t happen as quickly as anticipated. Although current economic data points to a different scenario, it highlights how quickly central bank sentiment can change. Therefore, using options to hedge any directional futures bets is highly recommended. Create your live VT Markets account and start trading now.

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