The British pound might drop below 1.3000 against the US dollar. Current market conditions suggest that if it declines further, it may not go down to 1.2960. Recently, the pound reached a low of 1.3012. This was surprising, and there are no signs of stabilization, making it likely to drop below 1.3000.

Recent Trends

In the last two weeks, the pound has been falling. It broke a key level of 1.3100 and closed at 1.3020 after a decline of 0.89%. Any further drops may be limited, despite the overall negative outlook. If the pound rises above 1.3120, it could signal that it won’t weaken any further. This content discusses market conditions and does not suggest specific trading actions. Readers should do their own research before making investment decisions. There is a possibility for the pound to fall below 1.3000, influenced by differing economic forecasts. Recent data from the Office for National Statistics shows that the UK’s GDP growth for Q3 was revised down to just 0.1%. In contrast, last week’s US Non-Farm Payrolls report added 210,000 jobs, exceeding expectations. This weakness in the UK supports the negative technical outlook for GBP/USD.

Trading Strategies

Given the sharp drop and oversold conditions, buying put options with a strike price near 1.2980 is a defined-risk strategy for expecting a break below 1.3000. This allows traders to benefit from a further decline towards the 1.2960 support area. The limited risk suggests that keeping these positions for a short time is wise. However, caution is necessary since the pound has dropped so quickly. A similar sharp decline happened in the second quarter of 2024, followed by a notable rebound when traders closed their short positions. Traders could sell out-of-the-money call credit spreads with a ceiling around the 1.3120 resistance level to earn income while remaining bearish. The mixed signals—a strong downtrend and an oversold market—imply that implied volatility may rise in the coming weeks. The interest rate gap remains in favor of the US dollar, as the Federal Reserve maintains a “higher for longer” position while the Bank of England shows concern over a recession. This situation might make strategies like long straddles appealing for traders expecting significant price changes, regardless of direction. Create your live VT Markets account and start trading now.

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