The GBP/USD pair has fallen for three straight days, hitting a near two-week low below 1.3300 due to renewed buying of the US Dollar. The USD Index reached its highest level since August, even with expectations of a dovish Federal Reserve and worries about a possible US government shutdown. Minutes from the Fed’s September meeting showed a mostly united decision to lower interest rates due to risks in the labor market, although members disagreed on how often to cut rates this year. On Thursday, the GBP/USD tried to stabilize, trading around 1.3413 USD. However, worries about the UK economy and uncertainty over the government’s budget in November keep sentiment cautious. UK GDP is expected to grow slowly towards the end of the year, with inflation predicted to rise to 4%, double the Bank of England’s target. Economic data indicates a slowdown after a strong start to 2025.

Sterling’s Influence By Global News

Sterling is affected by global news and has closely followed the euro lately, staying in a narrow trading range despite minimal selling pressure from the US government shutdown. External factors, a strong USD, and inflation risks are weighing on Sterling. Traders are focused on developments in the UK economy, policies from the Bank of England, and updates from the US Federal Reserve that might impact the exchange rate. We’re witnessing the pound decline for the third consecutive day against a surprisingly robust US dollar, with the GBP/USD pair now trading below the 1.3400 mark. This strength in the dollar is unexpected, as it occurs despite the Federal Reserve indicating potential rate cuts and the continuing government shutdown in Washington. This scenario suggests that the market currently sees the dollar as a safe investment. The main problem for Sterling is the poor outlook for the UK economy. Recent data confirms that the economy is slowing down, with third-quarter GDP figures showing growth of just 0.1%. With inflation expected to rise to 4% by year-end, we’re facing a challenging stagflation situation that limits the Bank of England’s options.

Fed’s Dovish Stance In The US

In the US, the Fed’s dovish approach is highlighted by weak economic indicators. The latest jobs report revealed that only 95,000 jobs were added in September, which is well below expectations and raises concerns about the labor market. This strengthens our view that at least one more interest rate cut is likely before the end of 2025. For traders in derivatives, this contrast between a strong dollar now and a dovish Fed in the future suggests increased volatility. The UK’s clear economic troubles create a bearish outlook for the pound. Consequently, we are considering buying put options on GBP/USD to safeguard against or benefit from a further drop towards the 1.3200 support level. Looking back, we saw a similar scenario in late 2023. Markets anticipated Fed policy easing, yet the dollar remained strong due to concerns about global economic stability. The current US government shutdown may be causing a similar safe-haven effect, temporarily overshadowing the fundamental weaknesses hinted at by future rate cuts. This indicates that the dollar’s eventual decline may be postponed, rather than entirely halted. Create your live VT Markets account and start trading now.

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