The GBP/USD pair is stable during the North American session, experiencing a slight decline as the US Dollar gains strength due to Trump’s softer approach towards China. Currently, the pair is trading at 1.3425 after reaching a peak of 1.3442, while traders await the US Consumer Price Index (CPI) data to be released on Friday. With little US economic activity and the Federal Reserve in a blackout period, traders are closely following Trump’s social media updates. Reports suggest he is pressing China on issues like rare earth elements, fentanyl, and soybeans, while official US-China talks in Malaysia are on hold amid a fragile trade truce.

UK Inflation and Market Reactions

UK services inflation might drop below what the Bank of England expected, which could lead to a shift towards a dovish stance in British swap markets. Recent employment data has raised concerns about the Sterling. The Bank of England seems to be leaning dovish, but interest rate cuts are not anticipated until March 2026. The GBP/USD is predicted to fluctuate between 1.3400 and 1.3443. The 50-day Simple Moving Average (SMA) stands at 1.3472, with support at the 20-day SMA of 1.3411. Additional support levels are noted at 1.3309 and 1.3248. The British Pound shows mixed performance against major currencies, and it’s strongest against the Canadian Dollar. With GBP/USD trading around 1.2550, our primary focus is on the upcoming US CPI report. The market appears quiet ahead of this release, which will signal the Federal Reserve’s next steps. If inflation is high, the US dollar may strengthen, exerting pressure on the pound. There are indications of persistent inflation in the US, as the last reading for August 2025 showed a 3.6% annual rate, significantly above the Fed’s target. If this week’s September data confirms this trend, options traders might consider positioning for more dollar strength. This could involve buying USD calls or GBP puts, expecting the Fed to maintain its tight policy for longer.

Potential Market Strategies

Meanwhile, the UK economy shows signs of slowing down, with inflation stubbornly high at 4.3% per our latest update. This complicates matters for the Bank of England, as higher rates could worsen a potential recession. The uncertainty might lead to increased volatility in the Sterling, making straddles a possible strategy for large price movements in either direction. We recall the sharp market reactions caused by US-China trade talks during the Trump years. Although the specifics may differ now, geopolitical tensions surrounding technology supply chains continue to pose risks. Any unexpected escalation could trigger a rush to safety, usually benefiting the US dollar and leading to swift market moves that could disrupt current positions. The pair seems to be trading within a range of 1.2500 to 1.2600, a phase that often precedes a significant breakout. Selling options outside this range may be a strategy to gather premiums, but it carries high risk given the approaching CPI data. A drop below the 1.2500 support level could lead to a quick descent toward the earlier lows around 1.2430. Create your live VT Markets account and start trading now.

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