**GBP/USD Market Overview** GBP/USD has dropped to 1.3280, hitting a two-month low due to concerns about the UK’s fiscal situation and strong demand for the US Dollar. The US Dollar Index is close to a two-month high at 99.56, limiting any potential recovery for the British Pound against the Dollar. Even with expectations that the Federal Reserve will cut interest rates further by December, the US Dollar remains sought after. The CME FedWatch tool indicates there’s over an 80% chance of a 50-basis-point rate cut. Federal Open Market Committee members recognize the need to ease monetary policy as labor market conditions worsen. However, a Fed Governor warned against too many rate cuts, as inflation targets may not be reached soon. Recent US data shows a weak consumer outlook, with the University of Michigan’s Consumer Sentiment Index slipping to 55 in October from 55.1. This backs the idea that the Fed might keep a dovish stance. **UK Fiscal Challenges and Market Impact** In the UK, ongoing fiscal challenges are shaking confidence. Potential tax increases by the Chancellor may further hurt growth. Bank of England MPC member Catherine Mann stressed the importance of maintaining restrictive monetary policy to manage inflation risks. The table below illustrates the British Pound’s percentage change against major currencies, highlighting its strength against the New Zealand Dollar. Current conditions suggest further declines in the GBP/USD pair. Concerns over the UK’s fiscal health are heavily impacting the pound sterling. Meanwhile, the US dollar remains a safe bet, despite expected rate cuts from the Federal Reserve. Recent data from the Office for National Statistics shows the UK’s budget deficit in September widened to a surprising £18.5 billion, increasing pressure on the Chancellor ahead of the November Autumn Statement. This makes tax hikes more likely. Traders might consider buying put options to capitalize on a possible drop toward the 1.3150 level. In the US, the dollar’s strength persists even as the economy shows signs of slowing. For instance, the Non-Farm Payrolls report from October 3rd, 2025, revealed job growth slowed to just 95,000. This aligns with the Fed’s dovish outlook, but global uncertainty keeps the dollar well-supported. Concerns over UK fiscal policy are reminiscent of the market turmoil seen in autumn 2022, showing how quickly confidence can disappear when fiscal plans look unsustainable. This historical insight suggests hedging long sterling positions, perhaps by shorting GBP futures contracts. Bearish sentiment is reflected in the derivatives market. One-month risk reversals for GBP/USD have dropped to -1.2, indicating a clear preference for put options that protect against declines. This suggests that taking bearish positions, like a bear put spread, fits well with the current market trends. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now