GBP/USD dropped 0.35% to 1.3219, falling below the 200-day Simple Moving Average (SMA) of 1.3237. Recent UK data showed inflation remaining steady at 3.8% in September and a weakening labor market. These factors raised the chance of a Bank of England rate cut in December to about 74%. The Financial Times highlighted a possible £20 billion impact on public finances due to a productivity downgrade by the Office for Budget Responsibility. Many in the market also anticipate a 25-basis-point rate cut from the US Federal Reserve, even as uncertainty surrounds comments from Fed Chair Jerome Powell during a data blackout.

Technical Analysis and Potential Further Decline

Technical analysis indicates that GBP/USD could continue to decline. If it closes below the 200-day SMA, it may target an August 1 low of 1.3141, followed by 1.3100. If it rallies above 1.3300, the next resistance level is the 20-day SMA at 1.3367. The Pound Sterling is the oldest currency in the world and the fourth most traded, making up 12% of all foreign exchange transactions. The Bank of England’s monetary policy aims for a 2% inflation rate and significantly influences its value. Economic indicators, such as the Trade Balance, also affect the currency’s strength. Currently, GBP/USD’s drop below the 200-day moving average signals possible bearish trends in the coming weeks. This movement is driven by signs of a weakening UK economy and rising expectations of a Bank of England rate cut in December, with a 74% probability now. This pressure weighs heavily on the pound. Sterling faces additional strain as the UK unemployment rate rose to 4.5% in the third quarter of 2025, indicating a softening labor market. Although inflation has decreased considerably from the highs of 2023, the September figure of 3.8% is still nearly double the 2% target set by the Bank of England. This places the central bank in a tough position, needing to balance combating inflation with supporting a faltering economy.

Federal Reserve Rate Cut Expectations

Meanwhile, the Federal Reserve is likely to cut rates today, but the situation is unclear. A government shutdown, now in its fourth week, has halted the release of critical economic data like payroll and inflation reports. This situation recalls the shutdowns in 2013 and 2018, which forced the Fed to operate with limited information, leaving Chairman Powell’s message uncertain today. For those trading derivatives, this environment suggests that further weakness for Sterling against the dollar is anticipated. Traders might consider buying put options on GBP/USD with strike prices around 1.3150 and 1.3100 to profit from a continued decline. Shorting cable futures can also be a direct strategy, targeting the swing low of 1.3141 from August 1. However, we need to be ready for surprises, especially from the Federal Reserve later today. A surprisingly hawkish tone from Powell could quickly strengthen the US dollar, accelerating the pound’s decline towards its April lows near 1.2707. To guard against a possible reversal, buying short-dated call options with a strike price above 1.3300 could help position for a rebound if the Bank of England pushes back against the talk of rate cuts. Create your live VT Markets account and start trading now.

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