The GBP/USD is holding steady around 1.3165 as markets prepare for the first US jobs report since the government reopened. This report is set to be released on Thursday, along with Initial Jobless Claims. Currently, the pair is trading at 1.3166, showing little change in the North American session. The US Dollar is gaining strength thanks to positive comments from Federal Reserve officials. According to the CME FedWatch Tool, there is a 43% chance of a rate cut in December. The US Dollar Index has climbed 0.25% to 99.52. Concerns about a potential AI bubble are causing a sell-off in US stocks.

UK Economic Outlook

The UK’s economic outlook is improving. Chancellor Rachel Reeves has ruled out income tax increases, providing relief to stakeholders after recent weak GDP figures. Upcoming Consumer Price Index data may lead the Bank of England to consider a rate cut in December. Technically, GBP/USD is trading within a range of 1.3100 to 1.3193. The Relative Strength Index indicates a bearish trend, with the potential for upward movement above the 20-day SMA at 1.3197 or a downward trend if it falls below 1.3100. Today, the British Pound performed best against the Australian Dollar. Previously, the market showed uncertainty around 1.3165 as we awaited key data in late 2024. This uncertainty was disrupted by a surprisingly strong US jobs report that winter, which kept the Fed on high alert while the Bank of England proceeded with its expected rate cut in December. This difference in policy largely caused the pound to weaken through early 2025. Now, the situation is changing. The Federal Reserve’s long period of tightening appears to be slowing the US economy. Last week’s initial jobless claims rose to 231,000, the highest in over three months, supporting this view. Consequently, the CME FedWatch Tool now suggests a 65% chance of a Fed rate cut by the end of the first quarter of 2026.

Bank Of England Pause

On the other hand, the Bank of England seems to have paused its easing cycle after last year’s cut. UK inflation remains stubbornly high, with the latest CPI at 3.1%, making further rate cuts unlikely soon. This stabilization in monetary policy is helping to support the pound after its steady decline. With this potential shift in central bank policies, we should look to position ourselves for a gradual recovery in GBP/USD from its current level of 1.2450. Buying call options around the 1.2600 level, expiring in February 2026, offers a low-risk way to benefit from expected dollar weakness. This strategy would gain from both a potential rise in the exchange rate and an increase in implied volatility. However, we need to guard against the risk that the US labor market remains strong in the next jobs report. A cost-effective way to protect our positions is to use put option spreads, which can shield us from a steep drop below the 1.2300 support level. This acts as a vital safety net if market sentiment unexpectedly turns against the pound. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now