The Pound Sterling has strengthened against major currencies as investors await the UK’s Q2 GDP data. Forecasts predict economic growth of just 0.1%, a drop from last quarter’s 0.7%. Yearly growth is estimated at 1%, which is below the Bank of England’s prediction of 1.25%. In Q1, the annual growth was 1.3%. With GDP slowing down, the Bank of England may face increased pressure, especially with soaring inflation concerns. Recently, the Bank raised its Consumer Price Index (CPI) forecast from 2.4% to 2.7%. Furthermore, the labor market is cooling, with job vacancies falling by 44,000 to 718,000 from May to July. July also witnessed a decrease of 8,000 in payrolled employees.

Sterling Gains Amid USD Selling Pressure

The Pound rose to about 1.3565 against the US Dollar as the USD faced selling pressure linked to possible Federal Reserve rate cuts in September. The US Dollar Index dropped to 97.70, marking a two-week low. The chances of a rate cut in September have increased to 94% after a modest CPI increase was reported. From a technical perspective, the Pound shows bullish potential against the USD, staying near 1.3570. Indicators suggest more upward movement ahead, with crucial support at 1.3140 and resistance around 1.3790. Upcoming speeches from Fed officials may shed light on future US monetary policy. Today, the Pound Sterling appears strong against the US Dollar, but this could be misleading for the weeks ahead. Official Q2 GDP figures released this morning indicate the UK economy stalled at 0.0% growth, a sharp decline from the 0.7% growth seen in Q1. This stagnation, along with a cooling labor market, raises concerns about the UK’s economic health. The Bank of England finds itself in a tough position, reminiscent of the challenges in 2022 and 2023. The latest CPI data for July 2025 showed a surprising 2.9%, exceeding the Bank’s own forecast of 2.7%. This puts them in a tough spot: raise rates to combat stubborn inflation or support a stagnant economy.

Volatility and Trading Strategies

The clash between slowing growth and high inflation leads to volatility for the Pound. For traders dealing in derivatives, there are opportunities to profit from sudden price changes by using strategies like buying straddles or strangles on GBP currency pairs. The economic data is sending mixed signals, making it hard for a clear trend to develop. Much of the Pound’s current strength comes from the weakness of the US Dollar rather than solid confidence in the UK economy. The market now anticipates a 94% chance of a Federal Reserve rate cut in September, a sentiment reinforced by Fed Chair Powell’s recent dovish comments at the Jackson Hole symposium. The US Dollar Index continues to fall, recently reaching a low of 97.55. Considering the negative UK economic data, the GBP/USD exchange rate nearing resistance around 1.3790 presents a chance to prepare for a potential decline. We believe breaking this level will be challenging as the realities of the UK’s economic condition may outweigh the influence of a weak dollar. Buying put options on the Pound or selling futures near this resistance could be wise. Looking ahead, all attention will be on the Bank of England’s next monetary policy meeting. Their statement will be key in signaling whether they will focus on inflation or growth. Any dovish wording that hints at a pause or concern for the economy could quickly reverse the Pound’s recent gains. Create your live VT Markets account and start trading now.

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