The GBP/USD currency pair is stabilizing around 1.3200 after recent drops caused by a 25 basis point interest rate cut from the Federal Reserve. Even though this cut was expected, comments from Fed Chair Powell about uncertainty regarding future rate cuts have strengthened the US dollar, pressuring the pound. In the UK, the pound faces its own challenges. The Bank of England might reduce rates, and there are concerns about the upcoming November budget. Prime Minister Keir Starmer has not ruled out tax increases, adding to economic uncertainty.

Key Technical and Market Challenges

The GBP/USD fell to a three-month low after it couldn’t hold its gains, breaching the important 200-day moving average at 1.3239. The next crucial support level is at 1.3141. Related analysis discusses the European Central Bank’s recent decisions and contrasts them with the UK’s economic situation. The piece also notes that gold prices remain below $4,000 amid US-China trade talks. Reviews of brokers for risk-sensitive traders and specific regional markets for 2025 are also included. Neither the author nor FXStreet are registered investment advisors, and nothing here should be taken as investment advice. The sharp decline in the pound has led to a stronger US dollar, as the Federal Reserve remains cautious. Breaking below the key 200-day moving average at 1.3239 is a concerning bearish sign. This indicates that any small recoveries in GBP/USD are likely to be short-lived, as the trend seems to be downward.

Market Dynamics and Future Outlook

The market is now fully pricing in a potential rate cut from the Bank of England. The latest UK inflation data for September 2025 showed a drop to 2.1%, which was lower than expected. Moreover, last week’s retail sales figures revealed a surprising 0.5% drop, indicating weakness in consumer spending ahead of the holiday season. This economic softness complicates the Bank of England’s ability to maintain current rates. In contrast, the US economy is showing resilience, which is why the Fed is hesitant to commit to further cuts. The last jobs report from September 2025 indicated that 250,000 jobs were added, and core inflation remains sticky at 2.8%. This difference between a slowing UK economy and a stable US economy is likely to continue strengthening the dollar against the pound. For derivative traders, this environment suggests that purchasing GBP/USD put options could be a smart strategy to profit from further declines. With the November UK budget approaching and uncertainty over potential tax increases, implied volatility is rising. Options can be an effective way to manage risk, allowing traders to target a potential drop toward the 1.3141 support level while limiting maximum losses. We’ve seen similar scenarios before when political uncertainty affects the pound, such as during the mini-budget crisis in September 2022. The Prime Minister’s hesitance to dismiss tax hikes is creating a comparable sense of unease among investors. History suggests that concerns about fiscal policy can lead to sharp, prolonged declines in the pound. With the 1.3200 level acting as a resistance, we are eyeing the August 1 low of 1.3141 as the next target for sellers. A decisive break below this level could lead to a deeper move toward the psychological barrier of 1.3000. Both the technical analysis and fundamental factors are currently aligning against the pound in the coming weeks. Create your live VT Markets account and start trading now.

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