The UK’s Gross Domestic Product (GDP) for September decreased by 0.1%, which is below the expected 0%. This decline indicates that the UK economy is struggling. In financial markets, the GBP/USD pair fell, trading around 1.3100 in Europe. The disappointing data on UK Industrial and Manufacturing Production has weighed down the value of the British pound.

Gold Prices Reach Highs

Gold prices have risen for four days straight, hitting a three-week high. Many market participants are hopeful that delayed US economic data will show weaknesses, especially due to the ongoing government shutdown. Market trends are mixed, with some sectors and indices doing well while the FTSE 100 saw a slight drop. Additionally, Stella’s price neared resistance levels, and there was a decrease in retail interest in Hyperliquid’s market. Hyperliquid’s market maker lost $4.9 million, making traders more cautious. The unexpected 0.1% drop in the UK’s September GDP signals that the economy is slowing as we enter the last quarter. This isn’t just a one-time event but a sign of potential further weakness. The market expected stagnation, so this negative report is likely to change attitudes towards the British Pound.

Pressure on the Bank of England

This weak economic news puts pressure on the Bank of England to take a more cautious approach in upcoming meetings. Recent data shows inflation is cooling; last week’s October CPI figure was 2.1%. This gives the central bank room to consider a rate cut to encourage growth. Discussions are shifting from “if” they will cut rates in 2026 to “when” this might happen. For those trading derivatives, buying put options on GBP/USD is an appealing strategy to hedge against or profit from further declines in the pound’s value. Implied volatility for sterling options has doubled from 7.8% to 9.1% this month, indicating that the market is preparing for larger price fluctuations. Selling GBP futures contracts is another way to express this bearish perspective on the UK economy. We are also monitoring the UK interest rate market, where SONIA futures now show a 45% chance of a 25-basis-point rate cut by the end of the first quarter of 2026. This is a significant increase from 20% before the GDP data was reported. This movement in rates confirms the negative outlook for the pound. This situation feels reminiscent of the periods of slow growth seen in the UK after the 2016 Brexit vote. The rise in Gold prices, now around $2,450 an ounce, reflects a broader move towards safety in the market. Such a flight to safety usually benefits the US Dollar at the cost of currencies like the pound. Create your live VT Markets account and start trading now.

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