The Pound Sterling is currently weak, down by 0.3% against the US Dollar. It is performing poorly compared to most G10 currencies, except for the Swiss Franc. Recent preliminary PMIs have put pressure on the pound. The services PMI came in at 51.2, below the expected 52.9. Meanwhile, the manufacturing PMI surprised slightly at 48.2, which was better than the forecast of 48.0.

Cbi Sentiment Figures

The CBI sentiment figures matched market expectations. All eyes are on Friday’s retail sales report, which is a key event for the week. The upcoming data is not expected to sway the Bank of England’s decision for its policy meeting on August 7, where a rate hold is expected. Market forecasts indicate one more 25 basis point cut by the end of the year. The multi-month bull trend appears to be slowing down. The Relative Strength Index is nearing a neutral position at 50. Recently, it found support at the 50-day moving average of 1.3529. We anticipate a near-term range between the 1.3500 support level and the 1.3580 resistance level. With the recent weakness, we view the pound’s immediate outlook as limited. The slowdown in the services sector, which makes up about 80% of the UK’s economy, is a significant obstacle that overshadows the slight improvement in manufacturing. Thus, any strength in the Sterling may face selling pressure.

Selling Volatility Strategies

We believe that this environment is better for selling volatility instead of taking a strong directional stance. With the currency likely to stay within a tight range, strategies like selling strangles or iron condors could be effective. Implied volatility for Sterling options has been decreasing, and we expect this trend to continue leading up to the central bank meeting. The forthcoming retail sales report is a key data point that could change the current situation. After a solid 2.9% rebound in retail sales volumes in May 2024, a weak figure for June could heighten recession fears and push the pound below its current support level. We are ready to capitalize on any spike in volatility surrounding this release. Looking ahead, the market is currently pricing in about a 70% chance of a rate cut by the Bank of England’s meeting in November. Historically, a currency tends to weaken when its central bank leans towards easing while others hold steady. This situation supports a bearish to neutral outlook on the pound in the medium term. Our strategy is to use technical levels to guide our options positions. We will consider selling put options near the 1.3500 support level, collecting premium with the expectation that it will hold in the short term. On the other hand, we see the 1.3580 resistance as a good level for selling call options. Create your live VT Markets account and start trading now.

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