The Pound Sterling has fallen to about 1.3400 against the US Dollar as demand for the Dollar increases. This shift happens even with the US government shutdown, which is expected to hurt the Dollar’s future. The US Dollar Index, which compares the Dollar against six major currencies, has risen by 0.35% to around 99.00. Concerns about political changes in Japan and France are boosting demand for the Dollar as a safe haven.

Political Influences on Currency

In Japan, political events are affecting expectations for interest rates. France is facing political instability after the prime minister resigned. The US government shutdown continues to impact economic forecasts. The Bank of England recently kept interest rates at 4% and took a cautious stance in their September meeting. Market watchers are waiting for a speech from BoE Chief Economist Huw Pill for insights on future policies. In the US, minutes from the Federal Open Market Committee’s September meeting are expected soon. These could reveal plans for future interest rate cuts. Given the current uncertainty, technical indicators suggest a bearish trend for the Pound against the Dollar. The US Dollar’s strength is pushing its index close to a two-month high of 99.00, which poses challenges for the Pound. The GBP/USD pair struggles to maintain the 1.3400 level due to safe haven demand spurred by political instability in Japan and France.

Market Considerations and Predictions

Although the US government shutdown seems bad for the Dollar, it’s wise not to bet against it based on this news alone. A similar situation occurred during the 35-day shutdown in early 2019, where global risks kept the Dollar strong. Currently, the market seems to prioritize international uncertainty over political issues at home. The upcoming FOMC minutes are crucial this week for confirming the Federal Reserve’s new easing direction. After a tough rate-hiking cycle that ended in 2023, the first rate cut in September marked a big shift in policy. Markets are now predicting an 82% chance of two more cuts this year, so any unexpected hawkish signals in the minutes could create major volatility. For the Pound, the Bank of England faces a tough situation with high inflation and a slowing economy. UK inflation, which exceeded 10% in late 2022, has stayed above the BoE’s 2% target, complicating decisions about easing policy. Huw Pill’s upcoming speech will be closely monitored for hints about how the bank will handle ongoing inflation. Given these mixed signals—a dovish Fed versus a strong Dollar—making directional bets on GBP/USD is risky. A more appealing strategy in the coming weeks may be to focus on volatility itself. Options strategies like straddles could be useful for capitalizing on sharp price changes as the market reacts to central bank communications and updates on the shutdown. Technically, the GBP/USD pair is in a short-term bearish trend below its 20-day moving average around 1.3468. A significant drop below 1.3400 could lead to testing the August low near 1.3140. However, any weakness in the Dollar would need to break serious resistance around the 1.3726 level to indicate a true trend reversal. Create your live VT Markets account and start trading now.

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