Pound Sterling Gains and Losses
The daily GBP chart indicates potential for GBP to rise through Monday’s 1.3330 high. Potential resistance is identified at 1.3365, while support levels are seen between 1.3265 and 1.3275.
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We are observing a mixed performance for the Pound, which is strengthening against a weaker US Dollar but losing ground to the Euro. This divergence suggests the current move in GBP/USD is more about Dollar weakness than standalone Sterling strength. The market appears to be in a holding pattern, digesting these conflicting signals.
Impact of US and UK Economic Data
The US Dollar’s recent decline follows last week’s July 2025 jobs report, which showed a lower-than-expected payroll increase of only 160,000, cooling expectations for any near-term tightening from the Federal Reserve. This gives GBP/USD room to move higher in the immediate term. We see the pair challenging the 1.3330 level, with potential to reach 1.3365 if the Dollar remains on the back foot.
However, the UK’s domestic picture is concerning, and we must not ignore it. The July Construction PMI figure of 44.3 is the worst we’ve seen since the economic shocks of 2020. This data confirms a deepening slowdown, compounded by recent figures showing UK manufacturing output has also contracted for a second straight quarter.
Given this backdrop, one approach is to use short-dated call options on GBP/USD to trade the potential near-term upside toward 1.3365. This allows us to participate in the rally while defining our maximum risk. This is a tactical play on the weak US data rather than a vote of confidence in the UK economy.
Looking toward the autumn, the £51 billion budget shortfall is a significant risk event for Sterling. We can recall the market turmoil and extreme volatility surrounding the UK’s fiscal announcements back in late 2022. The upcoming October budget could trigger similar price swings as the market digests potential tax hikes or spending cuts.
Therefore, we should consider preparing for a rise in volatility over the next several weeks. Buying long-dated straddles or strangles on GBP/USD could be a prudent strategy. This position profits from a large price move in either direction, which is a real possibility given the deep uncertainty surrounding the UK’s fiscal and economic path.
