The GBP/USD fell for the fourth straight day on Wednesday, nearing 1.3300 before slightly bouncing back to 1.3350 but still closed lower. Traders are looking forward to important economic data being released on Friday from both the UK and US, including UK Retail Sales and the S&P Global Purchasing Managers Index (PMI) for September. Concerns about global risk sentiment grew as the Trump administration considered responses to China’s export controls on rare earths. Trump has previously threatened to impose a 155% tariff on Chinese goods and is now suggesting US export controls on software, raising worries about potential market effects.

Key Data Releases

After a break on Thursday, key economic data will resume on Friday with indicators from the UK and US. UK Retail Sales and the S&P Global PMI will be revealed during the London session. Following this, US inflation data, particularly the Consumer Price Index, will close out the week. This data is crucial as it’s the last major inflation figure before the Federal Reserve’s meeting on October 29. The Pound Sterling is one of the oldest and most significant currencies in the world, making up 12% of foreign exchange trading. It is greatly affected by the Bank of England’s monetary policy, which aims to keep inflation steady. Economic indicators like GDP and PMIs influence the value of the sterling, with a strong economy attracting more foreign investment. With GBP/USD testing the 1.3300 mark, there’s significant downside risk due to global risk aversion. The ongoing US-China trade tensions, especially threats of US software export controls, are damaging market sentiment. This situation favors the US dollar as a safe haven, suggesting any rises in Cable are likely to be short-lived.

Market Volatility

We expect ongoing volatility, as demonstrated by the VIX index, which climbed above 20 for the first time in months last week. This heightened fear supports a stronger dollar and pressures the sterling. From our perspective in October 2025, this reflects similar risk-off periods during the trade disputes of 2018-2019, which typically hurt risk-sensitive currencies like the pound. Friday’s UK retail sales and PMI data will be crucial for the Bank of England’s next step. The UK Composite PMI has dropped from 52.8 to 50.6 in the last quarter, and another weak report could lead the BoE to indicate a pause in rate hikes. A disappointing figure would likely prompt traders to increase short positions on the pound against both the euro and the dollar. The US Consumer Price Index release on Friday is the week’s highlight, arriving just ahead of the Federal Reserve’s meeting on October 29. We recall how the Fed had to take strong actions in 2022 and 2023 when inflation remained stubborn. A high CPI reading would likely confirm expectations for another rate hike and could push GBP/USD down past the 1.3300 support level. Given this situation, buying downside protection on GBP/USD seems wise. One-month put options with a strike price around 1.3200 can provide a way to protect against a sharp drop after the data is released. The cost of these options has increased, with implied volatility now at its highest since August, indicating the market is preparing for a substantial price movement. Create your live VT Markets account and start trading now.

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