GBP/USD made small gains, trading around 1.3405 during the early Asian session on Thursday. The US Dollar lost ground against the Pound Sterling because of the ongoing US government shutdown. **US Government Shutdown Impact** The shutdown has now lasted nine days with no agreement as the Senate rejected both Republican and Democratic funding proposals on Wednesday. Consequently, the Bureau of Labor Statistics and the Bureau of Economic Analysis halted data collection, complicating economic decisions, including those by the Federal Reserve. Minutes from the Federal Reserve’s September meeting show a general trend toward lowering rates. However, some members are cautious due to inflation concerns. The Chief Economist of the Bank of England also supports a careful approach to interest rates, adding uncertainty to the BoE’s policy direction. The Pound Sterling is the oldest currency in the world and the fourth most traded, making up 12% of foreign exchange transactions. The primary goal of the BoE is to maintain price stability at around a 2% inflation rate, and its interest rate decisions reflect this goal. Higher interest rates attract foreign investments, which strengthens the GBP. Economic indicators like GDP, PMIs, and employment data also influence its value. Additionally, a country’s Trade Balance affects its currency, with a positive balance benefiting it. With the US government shutdown entering its ninth day, the lack of key economic data from the BLS and BEA is creating significant uncertainty. This data gap complicates the Federal Reserve’s decision-making, putting downward pressure on the US dollar. Traders are reacting by selling the dollar due to this information vacuum. **US and UK Monetary Policy Divergence** There is a noticeable divergence between US and UK monetary policy. Recent UK inflation data showed a persistent 3.1%, justifying the Bank of England’s cautious stance. In contrast, the latest US inflation figures, before the data suspension, were cooling toward 2.5%, supporting the Fed’s inclination to lower rates. Market expectations for lower US rates are rising quickly. As of October 9, 2025, the CME FedWatch Tool shows an 85% chance of a rate cut by December, up from just 60% two weeks ago. This trend makes holding US dollars less appealing compared to pounds. For derivative traders, this environment promises higher volatility. The Cboe Sterling Volatility Index has jumped 20% since the shutdown began, and we expect this trend to continue as long as Washington remains stalled. Strategies like buying options, such as straddles or strangles on GBP/USD, can allow traders to profit from large price moves in either direction, which seems likely in the upcoming weeks. Given the policy divergence, the outlook for GBP/USD looks upward. We believe using call options to bet on a rise above 1.3500 is a smart strategy, as it allows for potential gains while limiting downside risk. This is crucial when reliable economic data is not available. We should also look to history for insight on these political events. The record 35-day government shutdown from 2018-2019 reminds us that such situations can drag on. As this current shutdown extends, we anticipate more pressure on the dollar, reinforcing the case for being bullish on the pound. Create your live VT Markets account and start trading now.

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