The GBP/USD pair has rebounded from the support level of 1.3140 and is now above 1.3200 due to a dip in US Dollar strength. The USD Index has pulled back from a recent high, influenced by worries about a potential long US government shutdown and its economic effects, which has helped the GBP/USD pair. During the American trading session, GBP/USD fell, breaking below the 200-day Exponential Moving Average. In fact, it has recorded eight closing losses out of the last nine trading days, resulting in a -2.46% drop from its peak. Although the Federal Reserve lowered rates by 25 basis points, Fed Chair Jerome Powell’s cautious comments surprised many, indicating fewer cuts might occur until 2025.

New Downward Movement

Following a 25 basis point interest rate cut by the Federal Reserve, GBP/USD is seeing new downward movement. This cut was expected but didn’t stir much excitement in the market. The Pound is facing challenges as the Fed plans to cut Quantitative Easing efforts, transitioning its mortgage-backed asset balance to long-term Treasuries by December. Recent market trends show movements in different currency pairs and expectations for upcoming economic events that could affect them. Navigating this financial landscape requires careful thought, as market changes can be risky. The recent bounce in GBP/USD from the 1.3140 level seems like a temporary response to US dollar weakness, not a solid shift in favor of the pound. The pair has dropped over 2.4% in just nine trading days. This brief recovery could present a good opportunity for short positions. The Fed’s recent moves are a key influence, creating a more hawkish outlook despite the 25 basis point cut. According to the latest CME FedWatch data, there’s now an 85% chance the Fed will keep rates steady in December, reducing hopes for another rate cut this year. This is a sharp change from just a month ago and should provide strong support for the dollar.

UK Economic Data

In the UK, economic data isn’t strong enough to support the Sterling. Recent figures show inflation stubbornly high at 3.2%, well above the Bank of England’s target. This puts the BoE in a tough spot, unable to raise rates without risking economic growth, leaving the pound vulnerable against a strong Fed. This policy gap poses a significant challenge for the GBP/USD pair. For traders in derivatives, buying put options on GBP/USD may be a wise strategy over the next four to six weeks. Options expiring in December 2025 with a strike price around 1.3000 could offer protection against a drop below recent lows. Implied volatility has increased, but the costs remain reasonable for hedging or speculating on further declines. The main risk to this bearish outlook is the possibility of a prolonged US government shutdown, which the markets are closely monitoring. If the shutdown lasts more than a week or two, it could weaken the US dollar significantly and trigger a sharp reversal in GBP/USD. Thus, it’s wise to set tight stop-losses on short positions or use call options with a strike near 1.3300 as a protective measure. Reflecting on the period from 2022-2023, where aggressive Fed tightening led to strong dollar performance and drove GBP/USD to historic lows, the current situation in late 2025, while not as severe, shows a similar trend where the Fed is more hawkish than its counterparts. This trend suggests that the most likely direction for the pair is downward. Create your live VT Markets account and start trading now.

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