The GBP/USD pair is rising for the second consecutive day, bouncing back from its lowest level since early August around the 1.3250 mark. The ongoing drop in the US Dollar is giving this currency pair added strength, even amid disappointing economic data from the UK. Recent information from the Office for National Statistics shows that the UK economy grew just 0.1% in August, which was what the market expected. However, the data for the previous month was revised downward, now showing a 0.1% decline, while UK Industrial Production rose by 0.4% in August.

British Pound and Domestic Pressures

The British pound continues to face pressure due to a weakening domestic economy and reduced concerns about inflation. Slow wage growth allows the Bank of England to take a cautious stance, raising expectations for a possible rate cut in the near future. In global financial markets, the GBP/USD is approaching 1.3450 but faces resistance in this area. Gold is nearing a record high at $4,300 due to economic uncertainties and geopolitical risks, which are driving demand. Meanwhile, the cryptocurrency market shows Bitcoin declining while Solana attempts to recover above $200, indicating a shift in market sentiment. The pound’s rise toward 1.3500 seems mainly due to the dollar’s weakness rather than any real strength in the UK economy. Traders are broadly selling the dollar against most major currencies. This dollar-driven rally raises concerns about whether the pound can maintain these gains independently. The UK economy remains fragile, supporting market expectations for a Bank of England rate cut. The latest data for September 2025 shows UK inflation sticking at 2.8%, and the most recent GDP figures indicate almost no growth in the third quarter, a significant slowdown from the recovery in 2024. This weak domestic outlook suggests it will be challenging for the pound to gain much strength.

US Economic Condition and Dollar Weakness

The situation in the United States is similar, which explains the dollar’s current struggles. The latest US jobs report revealed Non-Farm Payrolls came in below expectations at just 145,000, and core inflation has cooled to 2.6% year-over-year. These figures provide the Federal Reserve a clear signal to consider further rate cuts to support the economy. For derivative traders, betting on the pound’s rise means betting against the dollar, rather than having confidence in the UK economy. Traders could use call options on GBP/USD to target a move towards 1.3500 while limiting potential losses if the sentiment changes. The high likelihood of a Bank of England rate cut makes holding long positions in the pound a risky endeavor. A clearer trend is the significant movement into gold, which has surged past $4,250 an ounce. This is a typical flight to safety amid increasing trade tensions and the prospect of global rate cuts. We’ve seen similar behavior in gold during past Federal Reserve easing cycles in 2008-2011 and 2020. It’s noteworthy that this risk-averse sentiment isn’t boosting cryptocurrencies, as Bitcoin continues to decline. This indicates that during this time of economic uncertainty, capital is moving towards traditional safe havens rather than speculative assets. We believe that holding long positions in gold, possibly through futures or options, provides a clearer opportunity for traders than trying to navigate the currency markets. Create your live VT Markets account and start trading now.

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