The GBP/USD exchange rate fell below 1.3300 on Thursday as investors turned to the US Dollar for safety. The ongoing US government shutdown, now in its ninth day, is starting to affect the markets. Efforts to settle the US budget issue remain stuck, raising concerns about the shutdown’s long-term effects. This situation is also delaying the release of official data, which makes traders rely more on private reports, such as the University of Michigan’s Consumer Sentiment Index.

Exchange Rate Decline

The GBP/USD exchange rate is continuing to decline, moving past recent levels and approaching the 200-day Exponential Moving Average around 1.3280. As the US Dollar gains strength, selling pressure on the pound has increased, indicated by a bearish trend reflected in the Relative Strength Index at 36. The Pound Sterling, the UK’s official currency issued by the Bank of England, plays a significant role in the foreign exchange market, making up 12% of all transactions. Its value is mainly influenced by monetary policy set by the Bank of England. Economic factors such as GDP, PMIs, and the Trade Balance also impact the pound’s value. A strong economy and a positive Trade Balance generally boost the currency, potentially leading the Bank of England to raise interest rates. As global uncertainty rises, the US Dollar is gaining strength, pushing GBP/USD toward the 1.2200 level. The current risk-off sentiment in the markets recalls previous US government shutdowns, and this demand for safe-haven assets is putting pressure on the pound.

US Economic Strength

The UK’s economic situation is worrying, especially after preliminary Q3 GDP figures showed a 0.1% contraction. The latest inflation data from September is at 2.8%, but this weak growth hinders the Bank of England from raising rates, which is a challenge for the pound. In contrast, the US economy seems strong, with September’s non-farm payrolls report showing an addition of 250,000 jobs. The Federal Reserve has kept interest rates steady at 4.50%, making the dollar more attractive for investors seeking returns. This difference in interest rates is a key factor pushing GBP/USD lower. Technically, sellers are in control, with GBP/USD trading below its 50-day moving average. We are closely monitoring the summer low around 1.2150 as the next crucial support level. If the rate drops below this mark, we could see a more significant decline. For derivative traders, this market suggests looking into strategies that could benefit from further declines or protect against them. Buying put options on GBP/USD might be a straightforward way to prepare for a fall below key support levels. Rising implied volatility makes timing entries critical. Alternatively, opening short positions using futures or CFDs offers a direct way to profit from the bearish trend. Given the strong downward movement, it’s wise to set stop-loss orders above recent resistance levels to manage risk if the market suddenly shifts. Create your live VT Markets account and start trading now.

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