The British Pound has fallen to about 1.3450 against the US Dollar in Monday’s European session, marking a three-week low. This drop is due to worsening market sentiment caused by renewed trade tensions between the US and the EU. US President Donald Trump has imposed 30% tariffs on imports from the EU and Mexico after trade talks failed. He also hinted that he might increase these tariffs if the EU responds with countermeasures.

GBP/USD Consolidation Phase

The GBP/USD pair is now in a consolidation phase after dropping from nearly four-year highs of 1.3789. Meanwhile, the US Dollar is steadily recovering, supported by safe-haven flows as worries about the trade war continue. Bitcoin has jumped past $122,000, reaching a new all-time high and showing signs of potential further gains. On the other hand, EUR/USD has slipped to the mid-1.1600s due to increased selling pressure and ongoing trade war fears. Gold prices are around $3,350 per troy ounce as new tariff threats loom, with caution dominating ahead of the US inflation data release and a strong US Dollar. We may see further weakness in GBP/USD, targeting 1.3400 as trade tensions and concerns about the UK budget grow. With volatility making a comeback, there’s a clear plan forming for the weeks to come. The CBOE Volatility Index, or VIX, has been rising from a period of low activity, currently around 17, reflecting the unease caused by Trump’s recent tariff announcements. This is not a time for passive waiting; it’s a moment to structure trades that take advantage of these clear pressures.

Sterling and the Options Market

It looks like the most likely route for sterling is downward. We are preparing for a drop to 1.3400 by buying put options on the cable. This gives us straightforward downside exposure with clear risk management. The reasoning is twofold: aside from transatlantic trade tensions, the UK’s latest CPI data shows core inflation stubbornly above the Bank of England’s target, while economic growth remains weak. This policy standstill leaves the pound vulnerable. We haven’t seen this kind of pressure on sterling since the post-referendum scramble of 2016, and the options market is starting to reflect similar concerns. The euro is also affected by these trends. With German manufacturing PMIs still sluggish and showing few signs of recovery, the economic drag is clear. Buying puts on the euro against the dollar seems like a sensible hedge against the escalating trade rhetoric from Washington. The dollar’s renewed strength as a safe haven is benefiting only itself. In the cryptocurrency realm, Bitcoin’s surge is hard to overlook. While directly buying at these new highs carries risks, we see chances in the options market. We’re creating bull call spreads on Bitcoin. This strategy allows us to capture potential upside while limiting our risk and reducing our entry cost. Open interest on call options has surged over 40% in the past month, signaling that institutional investors are betting on continued momentum as they move away from fiat currency turmoil. Finally, gold offers a pure volatility play. It’s tightly coiling ahead of the crucial US inflation report. The market anticipates significant movement, but the direction is uncertain. A high inflation number could push gold prices up, while a surprisingly low figure could strengthen the dollar and hurt gold prices. Therefore, we are buying strangles on gold futures—purchasing both an out-of-the-money call and an out-of-the-money put. This way, we don’t need to predict the direction of the breakout; we just need it to be decisive. According to the CME’s FedWatch tool, the market has already lowered expectations for a near-term rate cut, making this inflation data the most critical event on the horizon. Create your live VT Markets account and start trading now.

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