The GBP/USD fell after the Federal Reserve decided to keep interest rates steady with a 9-2 vote, offering no guidance for September. Strong US labor data, with Initial Jobless Claims dropping to 218K and Core PCE inflation rising to 2.8% year-over-year, boosted the US Dollar. On Wednesday, the Fed opted to maintain its policy. Two Governors wanted a rate cut, but many in the market now think a September rate cut is less likely, with a 65% chance of rates staying the same.

GBP/USD Movement Analysis

The GBP/USD dipped below the 100-day SMA at 1.3334, continuing its downward trend. If it falls below 1.3200, the next support level will be 1.3100. Conversely, a close above 1.3250 could let it test 1.3300. The British Pound, the world’s oldest currency, is important in global forex trading. The UK’s economic data, Bank of England (BoE) decisions, and trade balance can all affect its value. A strong economy and positive balance usually strengthen the currency, while weak data can cause it to decline. The US Dollar has gained momentum since the Federal Reserve held rates steady. Low jobless claims at 218K and persistent core inflation at 2.8% support this strength, making a September rate cut less likely. Additionally, new Q2 2025 data shows the US economy grew at an annual rate of 2.5%, suggesting the Fed will keep rates unchanged. Markets now see a 65% chance that interest rates will stay the same in the next meeting. This difference in policies between the US and UK is a key factor to watch.

Potential Market Volatility and Trading Strategies

Meanwhile, the UK economy shows signs of weakness, with June 2025 retail sales flat. UK inflation has eased to 2.1%, giving the BoE more reasons to consider policy easing compared to the US. The upcoming interest rate decision from the BoE on August 7th is crucial. For derivative traders, the growing gap between US and UK policies suggests more volatility in GBP/USD. This situation may prompt options strategies that take advantage of price fluctuations, like long straddles. The uncertainty surrounding the BoE meeting is a significant factor for this expected volatility. Given the bearish trend, we see potential in short positions on the Pound. Buying put options on GBP/USD could profit from a drop towards the 1.3100 level if it breaks the 1.3200 support. This strategy helps limit risk if the Pound unexpectedly strengthens. We recall how the US Dollar saw a strong rally during 2022 and 2023 when the Fed was raising rates aggressively while other central banks acted slowly. The current situation, with a hawkish Fed and a potentially dovish BoE, reminds us of that period and supports the idea that GBP/USD may continue to decline. The pair has already slipped below its 100-day moving average, signaling further bearish prospects. We will watch the 1.3200 level as a key point for new positions. Selling call options with strike prices above 1.3300 could also generate income while betting against a strong rally. Create your live VT Markets account and start trading now.

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