Insights 
VT 
GBP/USD experienced modest gains around 1.3405 during the early Asian session on Thursday. The US Dollar weakened against the Pound Sterling due to the ongoing US government shutdown.
US Government Shutdown Impact
This shutdown has lasted nine days without progress, as the Senate rejected both Republican and Democratic funding proposals on Wednesday. This has led to halted data collection by the Bureau of Labor Statistics and the Bureau of Economic Analysis, complicating economic decision-making, including by the Federal Reserve.
Minutes from the Federal Reserve’s September meeting revealed a general inclination toward cutting rates, with some members advocating caution due to inflation concerns. Bank of England’s Chief Economist advocated a conservative approach to interest rates, adding to uncertainty about the BoE’s policy direction.
The Pound Sterling is the world’s oldest currency and the fourth most traded, representing 12% of foreign exchange transactions. The BoE’s primary goal is maintaining price stability at around a 2% inflation rate, and its decisions on interest rates reflect this aim. Higher interest rates attract foreign investments, strengthening GBP, while economic indicators like GDP, PMIs, and employment data can also impact its value. A country’s Trade Balance plays a role as well, with a positive balance benefiting its currency.
With the US government shutdown entering its ninth day, the lack of key economic data from the BLS and BEA is creating significant uncertainty. This data blackout complicates the Federal Reserve’s decision-making process, putting downward pressure on the US dollar. We are seeing traders react to this information vacuum by selling the dollar.
US and UK Monetary Policy Divergence
The fundamental picture shows a growing divergence between US and UK monetary policy. Recent UK inflation data before today showed a stubborn 3.1%, justifying the Bank of England’s cautious and conservative stance. In contrast, the latest US inflation figures prior to the data suspension were cooling towards 2.5%, supporting the Fed’s inclination to lower rates.
This expectation for lower US rates is now being priced in aggressively by the market. As of this morning, October 9, 2025, the CME FedWatch Tool indicates an 85% probability of a rate cut by December, a sharp increase from just 60% two weeks ago. This sentiment makes holding US dollars less attractive compared to pounds.
For derivative traders, this environment screams higher volatility. The Cboe Sterling Volatility Index has already jumped 20% since the shutdown began, and we expect this trend to continue as long as Washington remains at a standstill. Buying options strategies like straddles or strangles on GBP/USD allows a trader to profit from a large price move in either direction, which is likely in the coming weeks.
Given the policy divergence, however, the path of least resistance for GBP/USD appears to be upward. We think using call options to speculate on a rise above 1.3500 is a sound strategy, as it offers exposure to potential gains while strictly limiting the downside risk. This is crucial when reliable economic data is unavailable.
We must also look at history for guidance on these political events. The record 35-day government shutdown back in 2018-2019 serves as a stark reminder that these situations can be prolonged. As this current shutdown extends, we expect more pressure on the dollar, strengthening the case for being long on the pound.
