GBP/USD faced challenges on Thursday as bulls struggled despite hopes for a rebound. Reports suggested that UK Prime Minister Keir Starmer might cancel planned tax increases, which could affect the UK’s financial situation. The US government is set to reopen temporarily, and markets expect to see economic data releases resume. The lack of October inflation and employment figures may worry traders looking for a possible Federal Reserve rate cut on December 10.

Role of Economic Indicators

Even though October data is missing, the September Nonfarm Payrolls report might affect the Fed’s decision. Markets are pricing in nearly a 50% chance of a rate cut in December. There’s a 90% likelihood that the next cut will wait until January 2026. The Pound Sterling, the world’s oldest currency, plays an important role in foreign exchange. Its value is influenced by the Bank of England’s monetary policy decisions, especially regarding interest rates. Changes in rates impact how attractive GBP is for global investors. Economic indicators like GDP and employment levels affect the Pound’s value. Strong data may lead the BoE to raise rates, strengthening Sterling. Conversely, weak data usually causes the GBP to drop. The Trade Balance also affects the Pound, with a positive balance boosting the currency.

Challenges for GBP/USD

The British Pound is struggling, as bulls are unable to push GBP/USD higher. Weak economic growth and uncertainty about the government’s fiscal plans are significant challenges. PM Starmer’s goal to cancel planned tax increases is shaking investor confidence in the UK’s financial stability. Recent economic figures show this difficulty, with the final third-quarter GDP numbers confirming a slight contraction of 0.1%. Additionally, October 2025 inflation data stood at a stubborn 3.5%, much higher than the Bank of England’s 2% target. This stagflation makes it tough for traders to support the Pound. On the US dollar side, the outlook is unclear due to the recent temporary government shutdown. The possibility of missing October’s key inflation and jobs data leaves the Federal Reserve with less information ahead of its December 10 meeting. This uncertainty means that the delayed September jobs report, set to be released next week, will be critical for the market. Given the unpredictability of both currencies, derivative traders should brace for increased volatility. Options strategies that can benefit from a large price move, regardless of direction, seem wiser than betting on a consistent trend for GBP/USD. The pair may see sharp swings driven by upcoming US data and further updates on UK fiscal policy. We recall how the UK bond markets and the Pound reacted negatively to unfunded fiscal plans in the autumn of 2022, when Cable crashed to record lows. Even though the current government’s plans differ, the perception of increased fiscal looseness makes investors uneasy. This history likely contributes to the current weakness in Sterling and traders’ hesitation to invest in the currency. Create your live VT Markets account and start trading now.

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