The GBP/USD pair faced significant selling in early European trading, dropping to the mid-1.3200s. This is the lowest point since early August, following a disappointing UK labor market report from the Office for National Statistics. UK unemployment jumped to 4.8% from 4.7% for the three months ending in August. In September, there was an increase of 25,800 in jobless benefit claimants. While average earnings, including bonuses, rose by 5.0%, regular pay growth declined to 4.7%.

UK Market Influences

These numbers could prompt the Bank of England to keep lowering interest rates. The strength of the US Dollar also added pressure on the GBP/USD pair. The GBP/USD is nearing a two-month low of 1.3260 due to the disappointing UK labor data. It’s close to a medium-term upward trendline, which might support a rebound if the pair reaches the 23.6% Fibonacci retracement level at 1.3370. Resistance may appear at the mid-level of the Bollinger Band and the 50-day simple moving average between 1.3435 and 1.3475. Traders are looking forward to more data that could impact the currency pair further. The weak UK jobs report has shifted sentiment against the pound. This is consistent with the latest CPI figures from last week, which showed inflation cooling to 2.1%. This fell short of expectations and dropped further from the Bank of England’s target, making a rate cut likely at the November meeting.

Traders Strategy

Traders are preparing for a further decline in GBP/USD by buying put options with strike prices around 1.3200 and 1.3150. This strategy allows for defined-risk profits if the pair dips below its current two-month lows. Implied volatility has already reached 9% for one-month options, indicating that the market is expecting more volatility before the BoE’s decision. For a more capital-efficient approach, a bear put spread could work well. This involves buying one put option at the 1.3250 strike and selling another at a lower strike, like 1.3150, to help finance the position. The strength of the dollar is a crucial factor, especially after last Friday’s US retail sales data exceeded forecasts, supporting the Fed’s steady policy. We saw a similar monetary policy divergence in 2016 after the Brexit vote, which led to a prolonged period of weakness for the pound. That history suggests this downward trend may continue if the BoE decides to cut rates. The 200-day moving average, now approaching the 1.3200 level, is a key target for short-sellers using futures contracts. However, we must be cautious of a short-term bounce from the mentioned upward trendline, which could trigger a squeeze. Create your live VT Markets account and start trading now.

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