The Pound Sterling is facing pressure after the UK GDP data for October showed a decline of 0.1%. This was unexpected, as the forecast was for a growth of 0.1%. Although the Office for Budget Responsibility has improved its GDP forecasts, the Bank of England might consider cutting rates. Traders are anticipating a 25-basis point reduction. UK Industrial Production increased by 1.1% in October, which is better than expected. However, Manufacturing Production fell short with only a 0.5% increase. Next week, important economic data will be released, including labor market statistics and consumer price figures, which may impact the Pound’s outlook.

GBP/USD Trading Insights

The GBP/USD pair is trading around 1.3385, having declined after the weak GDP report. The US Dollar is underperforming after the Federal Reserve cut rates by 25 basis points, with more cuts expected soon. President Trump is pushing for further rate reductions, affecting market views. From a technical standpoint, GBP/USD is approximately at 1.3380. The 20-day Exponential Moving Average hints at potential short-term gains, supported by the Relative Strength Index. However, for further gains, the pair needs to close above key resistance levels. Support is noted at 1.3279. With the UK economy shrinking for two months in a row, the Pound faces increased downside risk. This puts more pressure on the Bank of England to cut rates next week, similar to the situation in late 2023 when slowing growth led to changes in central bank policy. The market is strongly anticipating a rate cut, so we should adjust our strategies accordingly. A cut of 25 basis points to 3.75% is widely expected, making the Bank of England’s remarks on future policy the main focus. UK inflation rates are falling; November’s data showed a drop to 2.9%, providing the committee a reason to take action. Any suggestion of further cuts in early 2026 could hasten the decline of the Sterling.

Strategic Market Positioning

In the short term, buying put options on the Pound could be beneficial as we anticipate weakness leading up to next week’s data releases. This is especially relevant for the GBP/USD pair, which is struggling against significant technical resistance. This tactic allows us to profit from a potential decline while clearly limiting our risk. However, we shouldn’t overlook the weakness of the US Dollar, which is currently supporting GBP/USD. The Federal Reserve’s dovish approach, with a recent rate cut and expectations for another in 2026, is placing limits on the Dollar’s strength. Next week’s US Nonfarm Payrolls data will be crucial; if the number is below the expected 175,000, it would strengthen the Fed’s easing stance and support GBP/USD. Given the opposing weaknesses, the GBP/USD is stuck below the important 1.3400 level, making volatility strategies appealing. A short-term straddle, where we buy both a put and a call option, could effectively capitalize on the breakout likely to follow next week’s central bank meetings and data announcements. Keep an eye on the 20-day moving average at 1.3279 as a critical support level in case of a downward move. There are also strong opportunities in currency pairs that minimize the effect of the weak US Dollar. The Pound is struggling against the Australian Dollar, illustrating a policy difference, as the Reserve Bank of Australia is more focused on inflation. Shorting GBP/AUD offers a cleaner way to express a negative outlook on the UK economy. Create your live VT Markets account and start trading now.

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