GBP/USD has been on a downward trend for three days, dropping over 0.25%. The exchange rate fell below 1.3200 after the Federal Reserve’s restrictive decision, raising concerns about possible rate cuts in December. During European trading, the pound weakened against the US dollar, nearing 1.3185. This decline was fueled by a stronger dollar, supported by remarks from a meeting between U.S. President Donald Trump and Chinese leader Xi Jinping.

Market Conditions and Trends

The GBP/USD pair briefly went above 1.3200 during the Asian session due to some dollar weakness. However, market conditions remain cautious, limiting potential gains above this level. Other currency trends include AUD/USD dropping below 0.66 and EUR/USD falling under 1.16. Gold prices are rising, despite the strength of the dollar, and tensions in US-China trade relations have eased following recent diplomatic talks. FXStreet warns that market information carries risks and uncertainties. Investors should perform thorough research before making any decisions. This information does not serve as a recommendation for trading financial assets. Today’s dynamics are similar to when the Fed made a “hawkish” rate cut under Chairman Powell. The Federal Reserve indicates it will keep interest rates high for a longer time to control inflation, which strengthens the dollar. Recent data shows the core PCE price index, the Fed’s preferred measure of inflation, was at 2.8% year-over-year last quarter, remaining above the 2% target.

Strategic Considerations and Geopolitical Risks

This dollar strength coincides with pound weakness, similar to previous discussions. The Bank of England is facing slow GDP growth, last reported at just 0.2% for the third quarter of 2025. This makes it hard for them to adopt a similar stance as the Fed, creating ongoing downward pressure on the GBP/USD pair. In this environment, traders might consider strategies that benefit from a declining or stable pound. There is potential for GBP/USD to revisit its year-to-date lows from earlier in 2025. Buying put options on GBP/USD with strike prices below 1.2000 could provide a favorable risk-to-reward situation in the coming weeks. Additionally, we should remain aware of geopolitical risks similar to the US-China trade tensions discussed earlier. Current trade talks between Washington and Beijing are still uncertain, and any negative news could lead to a flight to safety, further strengthening the dollar. The US trade deficit with China has risen again to over $30 billion per month, indicating that these trade issues are far from resolved. The increased uncertainty suggests that GBP/USD volatility may rise as the year ends. The CME’s Sterling volatility index (BRR) has already increased by 5% this past month. This makes option-based strategies like put spreads an attractive choice, as they can profit from a downward movement while helping manage the cost of outright option purchases. Create your live VT Markets account and start trading now.

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