This week, the UK will release the S&P Global Flash PMIs for July. In the US, we will focus on housing data, Initial Jobless Claims, and durable goods orders. The GBP/USD outlook is neutral as it moves above 1.3500. To see further gains, it needs to close above the 50-day SMA at 1.3514. If it drops below 1.3500, it may trade in a range between 1.3400 and 1.3500.

British Pound Performance

Recently, the British Pound performed the best against the US Dollar. A heat map shows its percentage change against other major currencies, highlighting different strengths and weaknesses. We suggest that derivative traders view the current GBP/USD level as an important decision point. With the pair around 1.3500, it might be a good idea to buy call options with strike prices just above the 50-day SMA of 1.3514. This strategy can help take advantage of a potential breakout while minimizing risks if the currency can’t maintain its gains. The article notes increased borrowing, but recent data from the Office for National Statistics shows May 2024 borrowing at £15.0 billion, slightly lower than expected. With the UK’s general election on July 4, 2024, there’s high uncertainty about the next government’s fiscal plan. This uncertainty suggests that buying straddles or strangles could be a smart way to trade the anticipated increase in volatility, no matter the direction.

Short Term Positioning and Market Volatility

The upcoming S&P Global Flash PMIs are crucial for our short-term positioning. June’s flash PMI data showed the UK’s economic growth slowed to a seven-month low with a reading of 51.7, down from 53.0 in May. If July’s figures continue to decline, we may consider buying put options to protect ourselves against a drop toward the 1.3400 support level. The US dollar’s performance is also key. Its weakness has boosted the pair’s strength. Recent Initial Jobless Claims in the US were 238,000, slightly more than expected, which supports the idea of a cooling labor market. If upcoming US housing and durable goods data also disappoint, it could be a good opportunity to sell cash-secured puts on the pair, as a weaker dollar could provide solid support. Historically, the pound has sharply fallen during unexpected fiscal policy changes, like the 2022 “mini-budget” crisis. With the UK’s debt-to-GDP ratio now at 99.8%, the highest since 1961, we expect implied volatility to rise significantly before the Autumn budget announcement. We advise against selling uncovered options due to the high risk of sudden currency moves. Create your live VT Markets account and start trading now.

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