The GBP/USD exchange rate has dropped below 1.3350, impacting its recent gains. Even though the Dollar Index has fallen for seven sessions, the Pound Sterling’s upward trend is uncertain. Investors are now watching upcoming US inflation data closely. The Federal Reserve is expected to decide on interest rates in December. The market believes there is a 90% chance of a quarter-point rate cut. Current private data shows the US labor market may weaken further, increasing the chances for more rate cuts in the future. The Bank of England is key in determining the value of the Pound Sterling through its monetary policy, which aims to keep inflation stable. Economic indicators like GDP, PMIs, and employment data play a significant role in the Pound’s value. Strong data can support the currency. The Trade Balance is another important indicator. It shows the difference between what a country earns from exports and what it spends on imports. A positive balance can strengthen the currency, while a negative balance may weaken it. All economic data and indicators are important for stakeholders as they reflect the economy’s health and affect currency strength. The upcoming US inflation report, even if outdated, could influence future actions by the Federal Reserve. Recently, the Pound is facing resistance against the Dollar as the year ends. Currently, GBP/USD is around 1.3700, up from the previous 1.3350 level. This hesitation comes as the market reacts to mixed signals from the UK and US economies. Looking back, markets once thought there was a near 90% chance of a Federal Reserve rate cut. Now, the CME FedWatch tool shows a 95% likelihood that the Fed will keep rates steady during its next meeting, especially after last month’s non-farm payrolls added 195,000 jobs. The latest US Consumer Price Index (CPI) report for November shows inflation stubbornly holding at 3.1%, making it harder to justify easing policies. On the flip side, the Bank of England is tackling its own inflation issues, which have kept the Pound stable. The UK’s latest CPI was higher than expected at 3.8%, putting pressure on the BoE to maintain a tight policy. This difference in policies is a key reason for the Pound’s strength throughout 2025. For traders, this situation suggests that implied volatility may be undervalued ahead of next week’s central bank meetings. Buying straddles or strangles on GBP/USD could be smart, allowing for potential sharp moves in either direction. Any surprises, whether hawkish from the Fed or dovish from the BoE, could break the current range. Alternatively, for those who think the central banks will stick to their plans, selling options for premium income might be appealing. An iron condor strategy, which involves selling a call spread above recent highs and a put spread below recent lows, could profit if the pair remains stable. There is strong historical support around the old 1.3350 level, which could serve as a lower boundary for this strategy.

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