The British Pound Sterling has gained 0.2% against the US Dollar. This comes as the US Dollar weakens due to market sentiment. In this environment, GBP is performing moderately among the G10 currencies. Recent economic reports from the UK showed disappointing Q3 GDP figures and a drop in industrial production. Despite this, the market seems unfazed. There is still confidence in the fiscal plans leading up to the Budget announcement on November 26, reflecting trust in Chancellor Reeves’ strategy.

Technical Indicators are Bearish

Technical indicators point to a bearish trend for GBP. The Relative Strength Index (RSI) is around 40, below the neutral level of 50. GBP’s recovery has stalled near 1.3150. Market expectations remain cautious, with forecasts pegged between 1.3100 and 1.3200 unless a stronger recovery pushes GBP toward 1.33. The Pound is maintaining its position against a declining US Dollar, which is under pressure overall. This trend follows the latest US inflation data for October, which came in at 2.8%, lower than expected. This result has increased speculation about a Federal Reserve rate cut in early next year. Hence, Sterling’s climb is not due to domestic strength. Interestingly, the market seems to ignore the weak economic news from the UK released today. The confirmed Q3 GDP of -0.1% officially puts the UK in a technical recession, and industrial production has fallen sharply for the first time in over a year. However, this weakness is overshadowed by hopes for the upcoming November 26 Budget.

Confidence in Fiscal Management

There is significant confidence in the Chancellor’s ability to manage public finances, quite different from the volatility witnessed in 2022. The market is pricing in fiscal discipline, which is keeping UK government bond yields stable and preventing chaotic sell-offs of the Pound. For now, this stability is seen as more crucial than the current weak growth figures. For derivative traders, this suggests strategies that benefit from a stable range in the short term. With the GBP/USD pair stalled around 1.3150, selling strangles with strikes outside the 1.3100 to 1.3200 range might be a good option. This strategy would take advantage of the expected consolidation ahead of the budget announcement. The main risk comes from a surprise in the budget on November 26, which could disrupt the current stability. A calendar spread strategy—selling a short-dated option and buying a longer-dated one—could help manage this risk. This method profits from anticipated low volatility initially while remaining open to larger movements after the fiscal event. We should also pay attention to the bearish technical signals. The RSI is still below the neutral level of 50, around 40. A convincing move above 1.3200 would be necessary to challenge this cautious perspective and pave the way toward 1.33. Until then, any price rallies are likely to be met with skepticism. Create your live VT Markets account and start trading now.

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