The GBP/USD currency pair rose on Wednesday, reaching 1.3400 after recently falling to the 200-day Exponential Moving Average at 1.3290. Upcoming UK economic reports, like GDP growth, Industrial Production, and Trade Balance, may affect the Pound’s path in the short term. In the United States, the government shutdown is delaying crucial economic reports. This gap in information could hinder the Federal Reserve’s decision-making and may lead to interest rate cuts since important data, such as inflation and unemployment rates, are unavailable.

Pound Sterling Overview

The Pound Sterling is the official currency of the UK and ranks as the fourth most traded currency worldwide. The value of the Pound is influenced by the Bank of England’s monetary policy, particularly interest rate changes which aim to control inflation and stimulate economic growth. Economic indicators, like GDP and employment figures, give insights into the UK’s economic condition and can influence the Pound’s worth. The Trade Balance is also essential; a positive balance can boost the currency. Monetary policies and economic data from the UK and the US are key factors in shaping the GBP/USD exchange rate, affecting traders’ decisions and market trends. Given the recent strength of GBP/USD, it may be wise to buy call options to take advantage of potential gains toward the 1.3400 level. With the pair bouncing off its 200-day moving average, a call option with a strike price around 1.3000 for the upcoming weeks offers a strategy with limited risk. This way, we profit from a continued increase without facing unlimited risks if the trend reverses.

US Shutdown and Market Implications

The current US government shutdown brings considerable uncertainty, often leading to increased market volatility. Similar patterns emerged during the prolonged shutdown in late 2018 and early 2019 when missing key data, like inflation and job reports, made traders anxious. To hedge against or profit from potential volatility spikes due to the data blackout, traders might consider buying VIX call options or options on the US Dollar Index (DXY). Markets are now expecting the Federal Reserve to cut rates in response to the shutdown’s economic uncertainty. The CME FedWatch Tool indicates an 85% chance of at least one 25-basis-point cut by the end of 2025, a sharp rise compared to last month. To prepare for this, we can look into Long Secured Overnight Financing Rate (SOFR) futures, which will increase in value if the Fed cuts rates. With various UK economic data, including GDP and trade balance figures, anticipated soon, there is likely to be short-term volatility in the Pound. A surprising drop in UK GDP in the second quarter of 2025 caused the Pound to fall sharply, indicating high event risk. A short-dated options strangle on GBP/USD could be an effective approach to profit from significant price movements, regardless of whether the data comes in strong or weak. The rising demand for safe-haven assets is pushing gold prices up, closely linked to uncertainty in US politics and the economy. The anticipated Fed rate cuts are further driving this trend, as lower rates reduce the opportunity cost of holding non-yielding gold. It may be wise to buy call options on gold futures (GC) or major gold ETFs to benefit from this upward movement, especially since gold has historically performed well when real interest rates decline. Create your live VT Markets account and start trading now.

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