GBP/USD has fallen by more than 0.5% as the UK struggles with its budget and the US releases labor data. Concerns over the UK’s budget have arisen, with Chancellor Rachel Reeves accused of misrepresenting financial figures. Meanwhile, the Office for Budget Responsibility has reported an unexpected surplus due to strong wage growth and higher tax revenues. Political instability under Prime Minister Keir Starmer, declining poll numbers, and waning support within the Labour Party are putting extra pressure on the Pound Sterling. The focus is also on the Federal Reserve’s potential interest rate decision in December, which follows the longest US government shutdown. There’s a strong likelihood of a rate cut on December 10, though it could be postponed until January.

Technical Indicators

The GBP/USD pair faced resistance at 1.3250 and has now moved down to around 1.3200. Technical indicators suggest more downward movement may be ahead. As the official currency of the UK and the oldest in the world, the Pound Sterling plays a significant role in global forex trading. Its value is greatly affected by the Bank of England’s monetary policy, especially any interest rate changes aimed at managing inflation. Other economic indicators, like GDP and trade balance, also influence its value. Currently, the Pound is under pressure from domestic political issues and a potentially weaker US dollar. As GBP/USD drops below 1.3200, the Labour government’s instability weighs heavily on Sterling. This situation implies that any gains in the pair could present a selling opportunity before the Federal Reserve announces its decision next week. Political uncertainty in the UK is dragging down the Pound, even with some positive economic reports. Recent YouGov polling indicates that Prime Minister Starmer’s approval rating has fallen to 34%, causing market unease. This uncertainty overshadows the Office for Budget Responsibility’s report of a £12 billion surplus, which would typically be positive for the currency.

Focus On The Federal Reserve

All attention is on the Federal Reserve’s meeting scheduled for December 10, with markets anticipating a high chance of a rate cut. The CME’s FedWatch Tool currently indicates an 85% likelihood of a 25-basis-point cut, driven by disappointing data such as the October 2025 jobs report, which revealed only 150,000 new jobs added. A rate cut could weaken the dollar, potentially supporting GBP/USD. For derivative traders, this uncertainty suggests a strategy of buying volatility. Given the technical resistance at 1.3250, purchasing put options on GBP/USD with a strike price around 1.3150 could be a smart move to brace for further declines. This strategy helps protect against ongoing losses while limiting risks if the Fed’s decision unexpectedly strengthens the pair. There’s also the possibility that the Fed may delay its rate cut until January, which would be considered a hawkish surprise and could cause GBP/USD to drop sharply. Conversely, UK inflation for October 2025 remained stubborn at 3.1%, possibly preventing the Bank of England from adopting a overly dovish tone. This scenario creates a push-pull effect, keeping the pair volatile but within a certain range. Reflecting on the sharp market fluctuations of late 2022, we see how quickly sentiments can shift regarding central bank policies. The current situation feels similar, where unexpected moves from either the Fed or fresh UK political turmoil could lead to sudden swings in price. Hence, managing risk exposure ahead of the December 10 announcement is essential. Create your live VT Markets account and start trading now.

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