GBP/USD fell to around 1.3150 during the early Asian session on Monday, breaking a three-day losing streak. The US Dollar gained strength after the US Senate reached an agreement to extend government funding, which could help prevent a government shutdown. Federal employees are set to receive back pay, and states will resume delayed federal payments as part of this agreement. Some departments may have funding extended until January 30, while others could receive full-year appropriations, which may support the US Dollar.

US Labor Market Concerns

Rising worries about the US labor market are leading to expectations of more interest rate cuts from the Federal Reserve. Currently, the market sees a 66% chance of a 25 basis point rate cut in December. Last week, the Bank of England kept interest rates steady at 4.0%, showing caution ahead of the UK government’s Autumn Budget. Governor Andrew Bailey hinted at possible rate cuts soon, depending on inflation trends as we approach Christmas. The Pound Sterling is the oldest currency in the world, making up 12% of forex transactions. Its value is heavily influenced by the Bank of England’s monetary policy. Important economic data, such as GDP and the Trade Balance, which reflect economic health and import-export differences, also play a key role in impacting the Pound’s value. With the US government funding deal now in place, GBP/USD is under immediate downward pressure and may test the 1.3100 level. Traders might look into buying short-term put options to take advantage of this trend. This situation shows classic risk-off sentiment unwinding, which often gives a temporary lift to the US Dollar.

Labor Market and Policy Decisions

However, the US Dollar’s strength might be short-lived due to ongoing labor market weakness. In the October 2025 jobs report, Non-Farm Payrolls increased by only 120,000, falling short of expectations, and the unemployment rate rose to 4.2%. This weak data reinforces a 66% likelihood for a Federal Reserve rate cut in December. On the other side, the Pound Sterling is facing its own challenges. The Bank of England’s decision to keep rates at 4.0% while hinting at future cuts has made the pound less attractive. The latest UK quarterly GDP figures from Q3 2025 showed a 0.1% contraction, prompting the market to expect a BoE rate cut before Christmas. We are observing a competition between two central banks easing their monetary policies. The crucial question in the coming weeks is which will adopt a more dovish stance. With the UK’s recent services PMI dipping to 49.8, indicating an economic slowdown, the pressure on the Bank of England seems more urgent. Historically, government shutdown resolutions, like the one in early 2019, provided only a short-term lift to the Dollar before underlying economic trends took control again. Therefore, traders should be cautious of this dollar rally and may find value in strategies that predict longer-term sterling weakness. Selling GBP/USD futures or adopting bearish risk reversals could be a smart approach for the weeks ahead. Create your live VT Markets account and start trading now.

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