The Pound Sterling is trading around 1.3300 against the US Dollar during Monday’s European session, holding onto gains from Friday. This comes after a decline in the US Dollar due to disappointing Nonfarm Payrolls (NFP) data. The US Dollar Index stays near Friday’s low of about 98.60, indicating pressure on the Greenback. The recent NFP report showed only 73,000 jobs were created, falling short of the 110,000 expected. Unemployment rose to 4.2%, matching expectations, up from 4.1%. This has led to speculation about a potential interest rate cut by the Federal Reserve in September, with the probability now at 80.8%. The resignation of Fed Governor Adriana Kugler may steer policy towards easing. The Pound is showing mixed movements against major currencies, with attention on the Bank of England’s upcoming policy decision, where a 25 basis points rate cut is expected. UK employment data indicates slower hiring, alongside an unexpected rise in inflation. Revised S&P Composite and Services PMI data for July will be closely analyzed, with initial estimates showing moderate economic growth. President Trump’s comments about firing a Bureau of Labor Statistics official have raised concerns about the credibility of the data. Given the recent weakness of the US Dollar, we are watching derivative markets for signs of further decline. The Dollar Index’s drop to about 98.60 is directly linked to the disappointing July NFP report, which revealed only 73,000 jobs created. This significant shortfall has reinforced our belief that the US economy is slowing down. The chance of a Federal Reserve rate cut in September has jumped to over 80%, up from just under 60% a week ago. This change in outlook is backed by the latest CPI data, which showed inflation easing to 2.8% year-over-year, giving the Fed more room to lower rates. We believe options that bet against the dollar, like buying puts on dollar-tracking ETFs, are becoming more appealing. Looking back, there are similarities to the Fed’s shift in 2019 when slowing global growth led to a move from tightening to easing, resulting in a weaker dollar. The recent resignation of a hawkish Fed Governor adds to the dovish expectations for monetary policy. We are preparing for a similar environment in the coming weeks. For the Pound, the situation is trickier, creating opportunities in volatility trading. While the Bank of England is also expected to cut rates by 25 basis points, the UK faces a tough combination of slowing growth and persistent inflation. This uncertainty makes the Pound’s direction less predictable compared to the US Dollar. Recent data from the first half of 2025 highlights this challenge, with UK Q2 GDP growth showing no change at 0.0%, while the latest inflation rate unexpectedly rose to 2.5%. This stagflationary setting puts the Bank of England in a tough spot and affects the currency dynamics that traders can take advantage of. Therefore, we are considering strategies like a long strangle on the GBP/USD pair to capitalize on potential price swings in either direction following the BoE’s decision. With both central banks leaning towards easing, it will be crucial to see which one acts more decisively. The market’s response to the upcoming revised UK PMI data will be the next vital clue.

here to set up a live account on VT Markets now