The GBP/USD Exchange Rate

The Pound Sterling (GBP) is trading at about 1.3440 against the US Dollar (USD) in the European session. The US Dollar has remained stable, but there’s uncertainty about the economy due to the ongoing partial US government shutdown. The US Dollar Index, which tracks the USD against six major currencies, hovers around 97.90. The shutdown has delayed important economic data releases, including the Nonfarm Payrolls report, as government agencies are currently unable to operate due to funding issues. On Thursday, the GBP/USD pair dropped around 0.3%, ending a four-day winning streak. However, it remained steady at 1.3450 during Friday’s European session. Traders are now looking forward to the Institute for Supply Management’s Services Purchasing Managers’ Index data for September. The second day of the US government shutdown saw no Senate votes on funding legislation, coinciding with the Yom Kippur holiday. Market watchers are closely monitoring the Pound Sterling’s momentum, waiting for US economic data to better understand potential currency movements. With the GBP steady against the USD at around 1.3440, we are seeing a period of consolidation. This sideways movement primarily results from the partial US government shutdown, which has stalled the release of critical economic data like the Nonfarm Payrolls. Currently, there are no strong trends to drive significant movements in either direction.

Market Volatility and Risks

This uncertainty implies that making large bets on market direction is risky for now. Instead, traders might consider strategies that could take advantage of increased volatility once the shutdown ends. Implied volatility for one-month GBP/USD options has risen to 8.2% this week, up from a low of 6.5% in September, reflecting expectations of future market swings. We recall the 16-day government shutdown in October 2013, which caused a stall in the market before a sharp movement occurred once an agreement was reached. Historical patterns show that prolonged shutdowns usually weaken the dollar, disrupting economic activities and diminishing confidence. This suggests potential downside risk for the dollar, especially since recent UK inflation data from ONS showed a stubborn rate of 3.1% for September, which supports the pound. The US Dollar Index is currently fluctuating around 97.90, influenced by the shutdown’s negative effects and its role as a safe-haven asset during uncertain times. Although the shutdown is primarily a US issue, any indication that it could affect global risk aversion might temporarily boost the dollar. Prior to the shutdown, August retail sales in the US unexpectedly dropped by 0.5%, suggesting underlying weakness that may become apparent once regular data reporting resumes. In the upcoming weeks, the immediate focus will be on the ISM Services PMI data, but the highlight will be any updates on resolving the political standoff in Washington. Traders should be ready for the possibility of several weeks’ worth of delayed economic reports being released at once. This could lead to a rapid and considerable change in the GBP/USD exchange rate. Create your live VT Markets account and start trading now.

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