Pound Sterling is trying to stabilize against the US Dollar after falling to a two-month low of around 1.3280. Although Federal Reserve officials have made soft comments about interest rates, the GBP/USD pair remains weak due to strong demand for the US Dollar, driven by events in Japan and France. The US Dollar Index is holding steady near a two-month high of 99.56. Traders believe there’s an 81.5% chance that the Fed will cut interest rates by 50 basis points to between 3.50%-3.75% by the end of the year, according to the CME FedWatch tool.

Fed Members Share Different Opinions

Fed members have mixed opinions: some are in favor of further rate cuts, while others caution against this due to ongoing inflation risks. In the UK, Chancellor Rachel Reeves is expected to announce tax increases in November, which worries financial markets as it may hurt consumer confidence. Upcoming labor market data from the UK, due on Tuesday, will be vital for understanding the economic situation. The Pound Sterling is facing technical hurdles, as it has dipped to its 200-day Exponential Moving Average, with possible support around 1.3140. The Michigan Consumer Sentiment Index, which reflects how willing consumers are to spend, may impact the strength of the US Dollar. This reliable economic measure tends to boost the dollar if actual figures exceed expectations.

Market Shows Strong Negative Sentiment

Pound Sterling is testing a key technical point near 1.3280 against the US Dollar, coinciding with its 200-day moving average. The market is leaning bearish, indicating that if it falls below this level, more selling may follow, making it a critical time for downside profit strategies. The Pound is under pressure from expectations of tax increases in the UK’s Autumn Statement next month. The UK’s debt-to-GDP ratio is recently reported to be over 104%, suggesting that the government will likely have to tighten its budget. This sentiment is weighing down the economy and implies that any strength in the Pound will likely be short-lived. Currently, the US Dollar is strong, but the Federal Reserve is signaling possible rate cuts by the year’s end. Recent US job data showed an increase in unemployment to 4.2%, giving dovish Fed members more reasons to advocate for cuts. This contrast between immediate dollar strength and long-term dovishness introduces uncertainty. Given this scenario, traders might consider buying GBP/USD put options that expire after the late November Autumn Statement. This strategy allows for profit in case the Pound drops while controlling risk if the market changes direction. A strike price below 1.3200 would provide a favorable risk-reward ratio if support at 1.3280 fails. Looking back at the market turmoil following the UK’s “mini-budget” in 2022 shows how sensitive the Pound is to fiscal surprises. That incident revealed how quickly currency markets react to perceived unsustainable fiscal policies. This history makes having downside protection through derivatives a wise strategy before another major fiscal announcement. Today, the Michigan Consumer Sentiment Index will be closely watched. A lower-than-expected result would support the idea that the Fed needs to cut rates soon, potentially weakening the dollar and giving a temporary boost to the GBP/USD pair. Traders could use this rebound as a better entry point for bearish positions. Create your live VT Markets account and start trading now.

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