GBP/USD dipped to around 1.3390 during Tuesday morning in Asia. The US Dollar gained strength against the Pound Sterling due to eased tensions in US-China trade relations. President Donald Trump mentioned that imposing 100% tariffs on Chinese goods is not practical. While he criticized Beijing for issues in trade talks, he is set to meet with Chinese President Xi Jinping.

US-China Trade Talks

US Treasury Secretary Bessent confirmed ongoing discussions between the US and China in Malaysia ahead of the Asia-Pacific Economic Cooperation conference. This news provided some support for the US Dollar. Traders are eagerly waiting for the UK’s Consumer Price Index (CPI) report for September, which will be released on Wednesday. Ongoing inflation in the UK may influence the Bank of England’s (BoE) decisions on interest rates. The UK’s CPI is expected to climb by 4.0% year-over-year in September. Core CPI is forecasted to rise by 3.7% year-over-year, which will shape trading strategies for the GBP/USD pair. The Pound Sterling is the official currency of the UK and ranks as the fourth most traded currency worldwide, with GBP/USD being a significant trading pair. The BoE’s monetary policy greatly affects the value of GBP, responding to inflation rates.

Global Economic Data

Economic indicators like GDP, PMIs, and employment figures impact the Sterling alongside trade balance reports. A favorable trade balance can strengthen the currency as demand for exports increases. Looking at today, October 21, 2025, the factors affecting the GBP/USD pair have changed considerably. The long-standing focus on the 1.3400 level seems distant, as the pair traded around 1.22 toward the end of 2023 and is currently navigating a complex recovery phase. Nevertheless, the tension between inflation data and central bank actions remains the top concern for traders. Reflecting on the past, concerns surrounding the September 2023 CPI data were warranted, even though forecasts were optimistic. The actual figure came in at a surprising 6.7%, significantly above the 4.0% expected. This prompted the BoE to maintain a hawkish approach throughout 2024, which helped support the pound amidst global economic sluggishness. Today, the scenario is different; UK inflation has dropped to 2.8%, according to the latest reports, much closer to the BoE’s 2% target. However, this drop has come with economic growth challenges. The last quarter showed a mere 0.1% GDP growth, placing the BoE in a tough spot for its upcoming November meeting. For derivative traders, this uncertainty presents an excellent opportunity for volatility strategies. With mixed sentiments about whether the BoE will lower rates to boost growth or keep them steady due to persistent core inflation, buying straddles or strangles on GBP/USD options could be a smart move. This approach allows traders to profit from significant price shifts in either direction after the BoE’s announcement. On the US side, the dollar’s strength is increasingly tied to the Federal Reserve’s policies rather than specific trade statements. Recent US employment data exceeded expectations, with non-farm payrolls adding 210,000 jobs last month, pushing back predictions of a Fed rate cut. This contrast between a potentially dovish BoE and a steady Fed may put downward pressure on GBP/USD. Traders with a bearish outlook on the Pound might consider buying out-of-the-money put options on GBP/USD for a low-cost way to bet on a decline. Alternatively, utilizing futures contracts to hedge existing long positions on the pound is essential ahead of the next central bank announcements. These strategies help mitigate the risk that economic weakness could force the BoE to act more aggressively than the market expects. Create your live VT Markets account and start trading now.

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