The GBP/USD pair dropped below 1.3400 on Friday after UK Retail Sales did not meet expectations. Currently, it is trading around 1.3370, with little change. Even with the dip in UK Retail Sales, the Pound Sterling remains strong against other major currencies during Friday’s European session. The GBP/USD is stabilizing after its earlier pullback, trading in the 1.3380-1.3385 range, with a minor increase of 0.05%.

Bank of England’s Policy Update

Traders are assessing the Bank of England’s recent policy update, which included a 25 basis point interest rate cut. Meanwhile, US inflation data and other global economic signals are adding to cautious market sentiment. In the broader market, various financial assets are showing mixed results. Silver hit record highs near $67.50, while gold is seeking gains despite obstacles, and cryptocurrencies like Bitcoin and Ethereum are bouncing back amid bearish trends. The article emphasizes that the market conditions and information discussed involve risks and should not be viewed as investment advice. It is crucial for investors to conduct thorough research before making any investment choices. All risks and associated costs are the investor’s responsibility. The Pound Sterling is struggling to find its direction, sitting just below the 1.3400 mark against the US dollar. The unexpected 0.4% drop in UK retail sales for November, confirmed by the Office for National Statistics, is affecting market sentiment and indicates a weakening UK consumer as we move into the new year.

Impact Of US Federal Reserve

The Bank of England’s recent decision to cut interest rates by 25 basis points complicates the outlook for traders dealing in derivatives. With UK inflation cooling to 3.9% in November—down from 4.6% in October—the central bank may consider further policy easing, putting additional downward pressure on the Pound and making call options on GBP/USD less appealing. Conversely, the US Federal Reserve has adopted a cautious approach, limiting the dollar’s strength. The softer US inflation report for November, showing a Consumer Price Index of 3.1%, allows the Fed some flexibility to pause or adjust its policy. This contrast between a dovish BoE and a cautious Fed is leading to market consolidation, suggesting that range-trading strategies could be effective. Considering the time of year, we anticipate lower liquidity, which could cause larger price swings with any new data. Implied volatility in GBP/USD options has increased, and traders might look into strategies like straddles to capitalize on potential spikes in volatility, regardless of the direction. Being prepared for sharp, unpredictable moves in a quieter market is essential. In the broader market, a flight to safety is visible, with gold trading well above $4,300 per ounce. This indicates rising anxiety among investors, likely driven by the differing central bank policies observed globally this month. For traders in derivatives, managing risk exposure on Sterling should be a top priority as we enter the final weeks of 2025. Create your live VT Markets account and start trading now.

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