The Pound Sterling has recently fallen to about 1.3370 against the US Dollar, marking three consecutive days of decline. This drop comes as trade tensions between the US and China ease, making the US Dollar more appealing than the Pound. On Monday, the US Dollar Index, which gauges the dollar’s strength against six major currencies, rose by 0.25% to nearly 98.85. The UK’s inflation rate for September is expected to be 4%, matching the Bank of England’s forecasts and possibly affecting future economic decisions. The core UK Consumer Price Index (CPI) may rise slightly from 3.6% to 3.7%. Meanwhile, the US CPI is projected to stay steady at 3.1%. These inflation forecasts create pressure for both the UK and US central banks in their upcoming discussions.

Technical Analysis

From a technical view, the Pound Sterling is facing challenges against the US Dollar, hovering around 1.3370. It is below the 20-day Exponential Moving Average (EMA), and the Relative Strength Index indicates a sideways trend. The critical support level is at 1.3140, while resistance sits at 1.3500. The Pound continues to slide below 1.3400, propelled by a stronger US Dollar. This strength stems from optimism about a US-China trade agreement, reminiscent of the dynamics during the 2018-2019 trade tensions. Traders may consider buying puts on GBP/USD to prepare for a potential drop toward the 1.3300 level discussed in the technical analysis. Key events this week include inflation reports from the UK on Wednesday and from the US on Friday. While the UK’s headline CPI is expected to rise to 4%, it does not seem to be supporting the Pound, as concerns about a cooling job market weigh heavily. The US CPI is also predicted to climb to 3.1%, yet the market anticipates rate cuts from the Federal Reserve.

Market Volatility

We should recall the severe volatility the Pound experienced a few years ago, particularly during the 2022 “mini-budget” crisis, which caused GBP/USD to drop over 10% in just one month. Current data from the CME FedWatch tool indicates nearly a 75% chance of at least one Fed rate cut by December, suggesting that the market is focusing more on growth concerns than on inflation. This difference in central bank expectations highlights the significance of the US Dollar’s current strength. In addition to the Pound, the Dollar is notably strong against the Japanese Yen, as shown in the currency heatmap. Easing geopolitical tensions are putting pressure on the safe-haven Yen, a trend that tends to increase during optimistic market sentiments. This makes long USD/JPY positions an appealing choice for those bullish on the Dollar. Create your live VT Markets account and start trading now.

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