GBP/USD is holding steady above 1.3450, having grown over 1% last week. However, the technical outlook suggests it may be overbought in the short term. Last week, the second half saw positive movement for GBP/USD. The Pound Sterling gained strength after the Bank of England (BoE) hinted at a hawkish stance despite a rate cut. BoE Chief Economist Huw Pill warned about the risk of ongoing inflation. The Pound recovered against the US Dollar, lifting GBP/USD from three-month lows to nearly 1.3500, which is a ten-day high. This recovery is the best since late June, driven by strong performance last week. This boost was also supported by disappointing US labor data for July and a slowdown in the services sector. As concerns about the US economy grew, expectations increased for the Federal Reserve to lower interest rates in September. Currently, GBP/USD remains strong above 1.3450 after last week’s rally. However, it appears technically overbought, indicating a possible short-term pullback. Caution is advised about aggressively chasing the upward trend. The Pound’s strength is attributed to the BoE’s recent hawkish position, even with the rate cuts. The recent UK CPI data for July 2025 showed a stubborn 4.1%, leading the market to think that the BoE will be slow to make further cuts. This underlying support is crucial for the Pound. Conversely, the US Dollar is weakening due to worries about an economic slowdown. The July Non-Farm Payrolls report, which revealed only 165,000 new jobs, along with the ISM Services PMI dropping to 51.2, has added to these concerns. Consequently, traders now see an 85% chance of a Fed rate cut in September, according to the CME FedWatch Tool. Given this situation, there’s an opportunity in options strategies that allow for continued growth with controlled risk. Buying call options on GBP/USD could yield additional gains if the trend heads towards 1.3600. To safeguard against the overbought conditions, a bull call spread would be a smarter choice, capping losses if the pair takes a downturn. We should also expect increased volatility as we near the September central bank meetings. Referring back to 2022, we witnessed rapid and unpredictable currency fluctuations due to differing central bank policies. This environment indicates that strategies such as long straddles, which profit from big price moves in either direction, could be appealing if the market turns uncertain.

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