The GBP/USD pair rises above 1.3200 as a weaker USD follows a drop from the post-FOMC highs. However, worries about the UK’s financial situation and Bank of England (BoE) rate hike expectations limit further increases. GBP/USD is bouncing back from 1.3140, its lowest point since May, gaining momentum during the Asian session. The USD Index, which tracks the Greenback against a group of currencies, is falling, which helps this rise. Still, bullish traders should be cautious.

Federal Reserve and USD Dynamics

The Federal Reserve’s strong position provides some resistance to the USD’s decline, while the threat of a US government shutdown adds to its weakness. Fed Chair Jerome Powell’s remarks against a quick rate cut, along with upcoming discussions between US and Chinese leaders, continue to support some demand for the USD despite waning market confidence. The UK Office for Budget Responsibility is expected to lower productivity forecasts, likely widening the fiscal gap by over £20 billion. With traders anticipating more rate cuts from the Bank of England, there’s a 68% chance of a 25 basis point cut in December, making them hesitant to bet on the GBP. The Pound Sterling is heavily influenced by the Bank of England’s monetary policies, the UK’s economic data, and its trade balance, which all impact its value against other currencies. Reflecting on older analyses, we see ongoing concerns about a tough Fed and the UK’s fiscal health affecting the pound. The 1.3200 level seems far away now, as we’re trading around 1.2350 today on October 30, 2025. The ongoing difference in policies between the US and UK remains a key factor for traders.

US Dollar and British Pound Trends

The US dollar’s situation is much clearer now compared to the anxiety during the trade war era. US core inflation remains stubbornly at 2.8%, and the latest job report shows strong growth with 190,000 new jobs added, leading the Federal Reserve to adopt a “higher for longer” approach. This indicates that significant dips in the US dollar present buying opportunities, making long-volatility strategies on the dollar index (DXY) appealing. In contrast, the British pound faces significant challenges from a troubling domestic outlook. The latest data shows the UK economy only grew by 0.1% in the third quarter of 2025, and consumer confidence has fallen to a nine-month low. This continues the long-standing concerns about UK productivity and leaves the Bank of England with limited options, unlike the Fed. This difference is causing a slow, low-volatility decline in GBP/USD. For derivative traders, the focus is not on anticipating a drastic fall but rather a consistent decline. Considering selling out-of-the-money call options on GBP/USD futures with expirations in the next four to six weeks could be a smart way to earn premiums as the pair struggles to grow. We observed after the 2022 mini-budget crisis how quickly sentiment can shift against the pound. While the current situation is less severe, it indicates potential downside risks. Purchasing inexpensive, long-dated GBP/USD puts could effectively hedge your portfolio against any surprising unfavorable fiscal news from the government’s upcoming budget review. Create your live VT Markets account and start trading now.

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