The Pound Sterling (GBP) has increased by 0.2% against the US Dollar (USD), making it a moderate performer among G10 currencies. This rise is mainly due to a weaker USD, not any positive changes in the UK economy.

Market Fundamentals For The Pound

The market fundamentals for the Pound are getting worse, indicated by a decline in UK-US spreads that had recently hit two-year highs. Investors are adjusting their expectations, anticipating a more cautious Bank of England due to disappointing labour market data from the UK. Governor Bailey has recognized the weakness in the UK labour market while also noting above-target inflation. Markets now expect a nearly full 0.25% interest rate cut by February, an increase of about 10 basis points just in the past week. The Relative Strength Index (RSI) is improving from bearish levels and moving towards the neutral level of 50. The GBP/USD pair has support in the mid-1.32 range, with potential resistance near 1.34 and the 50-day moving average at 1.3476. The short-term outlook suggests it will likely trade between 1.33 and 1.34. As of October 15, 2025, the British Pound is seeing a slight rise against the dollar, but this may be misleading. This change is more about the recent weakness of the US dollar, following soft retail sales data, than any positive developments in the UK economy.

UK Economic Challenges

The UK’s economic situation is declining, highlighted by a disappointing jobs report showing unemployment rising to 4.5%. This has led us to reassess the Bank of England’s direction, as markets are now expecting a full 0.25% interest rate cut by February 2026. Governor Bailey is clearly worried about the labour market, even as inflation remains high at 3.1%, well above the 2% target. Given this shift from the central bank, we see opportunities for further Pound weakness. For GBP/USD, selling during rallies towards the 1.34 level or using put options to bet on a drop below 1.33 seems like a solid strategy in the coming weeks. Resistance near the 50-day moving average of 1.3476 is expected to be strong. This weakness in the UK economy is occurring amid global economic uncertainty, as mentioned in a recent IMF report. This indicates that volatility in major indices might increase, making options strategies that benefit from price movements, like long straddles on the FTSE 100, potentially profitable. The pace of global growth continues to be slow, which may put pressure on riskier assets. The Bank of England now faces the challenge of managing a weak labour market while dealing with high inflation, similar to the dilemmas central banks encountered in 2022-2023. History shows that when worries about growth outweigh inflation concerns, central banks typically lower rates, which is usually bad for their currency. We are starting to see this shift in market expectations now. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now