The Pound Sterling has weakened, trading around 1.3420 against the US Dollar, which has gained strength despite concerns about potential layoffs from a partial US government shutdown. The US Dollar Index, which tracks the currency against six major currencies, has risen by 0.55% to about 98.25. Investors are anticipating a speech from Bank of England Governor Andrew Bailey. Current market conditions show mixed results for the Pound against key currencies. The Bank of England’s previous meeting indicated that inflation would peak around 4% in September. However, recent surveys show that one-year inflation expectations have slightly increased to 3.5%. The revised UK Services PMI for September is at 50.8, lower than the initial 51.9, suggesting slower growth than expected.

GBP/USD Struggles

The GBP/USD pair is finding it hard to break above the 20-day EMA, currently around 1.3476, with the 14-day RSI indicating no clear trend. The lower support is at the August 1 low of 1.3140, and resistance is at the September 17 high of 1.3726. The Bank of England uses monetary policy tools like interest rate changes and quantitative easing to manage inflation and stabilize the economy. The Pound’s fall to 1.3420 against a surprisingly strong dollar shows that the market is overlooking the political issues associated with the US government shutdown. This pattern has been seen before; during the lengthy 35-day shutdown in late 2018 and early 2019, for example, the US stock market actually rallied significantly. The focus remains on economic strength rather than temporary political issues. The Dollar’s rise is supported by strong economic data, which suggests the Federal Reserve will keep interest rates high for an extended period. The latest non-farm payroll report for September 2025 indicated that the US economy added 250,000 jobs, surpassing expectations. With US core inflation steady at 3.7%, the Dollar is currently more appealing than the Pound.

UK Economic Challenges

In contrast, the UK economy is sending mixed signals, putting the Bank of England in a tricky spot. Inflation is persistent, with the latest reports from August 2025 showing the Consumer Price Index (CPI) at 3.9%, far above the 2% target. However, slowing growth in the service sector, indicated by the PMI figure of 50.8, suggests that rate hikes are beginning to have an impact, raising the possibility of a rate cut before the end of the year. For derivative traders, this uncertainty ahead of Governor Bailey’s speech could lead to increased volatility. Buying near-term GBP/USD straddles might be an effective strategy for a potential strong price move, no matter how Bailey’s comments affect the market. Implied volatility has already risen to 9.2% for one-month options, and we expect this to continue to increase as the speech draws closer. Given the downward pressure, traders who are bearish on the Pound may want to buy put options with strike prices below the current level, aiming for the August 2025 low of 1.3140 as a key support level. On the other hand, any rally attempt will likely face resistance near the 20-day moving average around 1.3476. Selling call options with a strike price above this level could allow traders to collect premiums while betting on continued weakness for the Pound. Create your live VT Markets account and start trading now.

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