The Pound Sterling increased by 0.26% against the US Dollar as the US government shutdown reached its third day. This shutdown affected important economic data releases, including the Nonfarm Payroll figures for September. The GBP/USD was trading at 1.3471 after bouncing back from a low of 1.3427, influenced by Purchasing Managers Index (PMI) data from S&P Global and ISM in the US. During the European trading session, the Pound held steady around 1.3440 against the US Dollar. This stability was due to the ongoing partial government closure, which left traders without new economic information. As a result, the US Dollar weakened, leading to consolidation in the GBP/USD pairing.

Market Trends In Asia

In Asia, GBP/USD rose slightly to approximately 1.3435 as the US Dollar weakened. This was in response to signs of a slowing American job market amid the government shutdown. The Nonfarm Payrolls report for September was delayed, but the ISM Services PMI and S&P Global Services PMI were expected to be released later in the day. Traders continued to feel the impact of the US shutdown while assessing its economic effects. With the US government shutdown now in its third day, the dollar is predictably weakening due to the delay in important data like the Nonfarm Payrolls. This situation creates a lack of data, making it hard to predict the Federal Reserve’s next actions and increasing short-term volatility. In this environment, buying options like straddles or strangles on GBP/USD could be a smart strategy to navigate the uncertainty without committing to a clear direction. It’s important to note that past shutdowns, such as the 16-day closure in October 2013, created similar data gaps but led to temporary effects. Once a resolution was found, market focus quickly shifted back to economic fundamentals, often reversing initial dollar weaknesses. Therefore, selling USD call options with short-term expirations might be a way to take advantage of a potential market recovery once Congress reaches an agreement.

Policy Divergence Between Fed And Bank Of England

Aside from the shutdown, a key factor affecting GBP/USD is the differing policies of the Federal Reserve (Fed) and the Bank of England (BoE). UK inflation has remained stickier than expected into 2024, keeping the BoE hawkish. In contrast, US core PCE has struggled to drop below 2.5%, leading the Fed to begin cutting rates earlier this year. This environment supports holding long-term GBP/USD call options to benefit from this upward trend. Gold’s rise toward $3,890 is a typical flight-to-safety reaction, driven by the shutdown and the potential for more Fed rate cuts. This dual support makes gold a desirable asset in the coming weeks. Traders might consider buying gold futures or using bull call spreads on gold ETFs to capitalize on further price increases while managing risk. The strength in assets like Bitcoin, which is around $120,000, signals expectations that the shutdown will push the Fed towards more aggressive rate cuts. This results in a divergence, where some assets respond to risk-off sentiments while others react to expectations of dovish policies. Given this, purchasing protective put options on crypto-related equities could be a smart hedge against any sudden changes in the Fed’s messaging back to a hawkish stance. Create your live VT Markets account and start trading now.

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