Sterling softened against the Dollar on Friday, with GBP/USD down about 0.16% at 1.3366 after US business activity firmed while consumer sentiment deteriorated on complaints about high prices. Geopolitics also stayed in focus as tensions in the Middle East remained elevated, and President Trump said the war with Iran could be ended “very quickly”, adding that the US controls the Strait of Hormuz.
The Pound underperformed despite a stronger UK flash S&P Global PMI set for October. Composite PMI rose to 53.1 versus 52.0 in September and exceeded the 51.8 consensus, reflecting growth in both manufacturing and services. Even so, markets continued to debate the path for UK rates: recent pricing has centred on a 25 bps Bank of England move to 4.00% in November, while EUR/GBP fell to its lowest level since May 2025 and broader Dollar strength kept GBP pressured.
Technical Outlook and Resistance at 1.3400
The British Pound is struggling near the 1.3400 resistance level against the US Dollar, even after the UK Composite PMI climbed to a strong 53.1 in October. In the coming weeks, we recommend that derivative traders approach GBP/USD with caution, as the recent push toward 1.3400 looks increasingly overstretched. While the market is heavily pricing in a 25 basis point hike to 4.00% by the Bank of England on November 5, long-term rate tightening expectations appear overly optimistic.
Risk Management Strategies and Macro Headwinds
We advise hedging against potential downside risks by considering short GBP/USD positions on rallies toward 1.3400 or using put options to capture a potential pull-back. Below-capacity economic growth, persistent pressure on real wages, and anticipated fiscal drag suggest that any Sterling rallies could be short-lived. Historically, currency gains driven purely by unexpected flash PMI beats tend to fade quickly when broader macroeconomic fundamentals remain sluggish.
Traders should also prepare for heightened market swings ahead of the upcoming early November central bank decisions and ongoing geopolitical tensions. Selling call spreads above 1.3450 or buying volatility via options straddles can help manage risk while capitalising on expected price swings. With US business activity remaining resilient and supporting the Greenback, maintaining a defensive posture on the Pound offers the best risk-reward profile over the next few weeks.
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