The Pound Sterling is under pressure due to uncertainties surrounding the Bank of England’s policy decisions. This cautious sentiment follows slower job growth in the UK and expectations for a possible interest rate cut by the Bank of England. Market speculation suggests there’s a one in three chance of a 25 basis points rate reduction based on recent employment and inflation figures. On the other hand, the US Dollar is performing well, mainly because the likelihood of the Federal Reserve lowering interest rates has decreased. The Pound is trading at about 1.3140 against the US Dollar, influenced by reduced expectations of a dovish Fed in December. The Fed’s choice on whether to keep current interest rates is crucial for future economic activity, with the US ISM Manufacturing PMI expecting a reading of 49.2 for October.

Technical Analysis

Technical analysis shows the Pound Sterling is bearish, trading below the 200-day Exponential Moving Average. Important levels to monitor include support near 1.3100 and resistance at 1.3370. The ISM Manufacturing PMI, which reflects the health of the US manufacturing sector, is significant for traders, with expectations slightly above last month’s figures. A reading under 50 would imply contraction, impacting the strength of the US Dollar. Currently, the Pound is weak, and the US Dollar is strong, creating a noticeable trend. A key event this week is the Bank of England’s interest rate decision on Thursday, with an increasing likelihood they may cut rates. This uncertainty is putting downward pressure on the GBP/USD pair, which is trading near a six-month low. There is a possibility of a BoE rate cut influenced by real economic data. The Office for National Statistics reported that UK unemployment rose to 4.5% for the three months ending in August 2025. Coupled with the September Consumer Price Index falling to 3.8%, this suggests the BoE might consider easing its policy to support the slowing economy. In contrast, the US economy seems stronger, giving the Federal Reserve less reason to lower rates. The latest US Non-Farm Payrolls report released last Friday showed the addition of 215,000 jobs, which exceeded expectations and indicated a tight labor market. Additionally, US inflation for September remains stubbornly at 3.9%, well above the Fed’s 2% target, suggesting continued hawkish sentiment.

Strategic Considerations for Traders

Given the high uncertainty surrounding the BoE announcement, it’s wise to consider strategies that can profit from significant price movements in either direction. Buying option straddles or strangles on GBP/USD could effectively take advantage of the expected volatility. This strategy allows profit from large movements without needing to predict if the BoE will cut rates or keep them steady. For those holding a bearish outlook, the technical situation supports shorting the Pound against the Dollar. Since the GBP/USD pair is trading below its 200-day moving average, a clear bearish signal, we could explore selling futures contracts. The next important support level to watch is the psychological barrier at 1.3000. Before the BoE meeting, it’s crucial to closely watch the upcoming US ISM Manufacturing PMI data. A number stronger than the 49.5 consensus would likely strengthen the US Dollar and push GBP/USD nearer its recent lows. Conversely, a surprisingly weak figure could provide a temporary bounce for the struggling Pound. Create your live VT Markets account and start trading now.

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