Insights 
VT 
The Pound Sterling rose against the US Dollar, trading near 1.3440. The UK’s GDP increased by 0.1% in August, with Industrial Production and Manufacturing Production up by 0.4% and 0.7%, respectively.
The US Dollar Index is near a weekly low at 98.40 due to anticipated Federal Reserve interest rate cuts. There’s a 94.6% likelihood the Fed will cut rates by 50 basis points to 3.50%-3.75% this year. Fed Governor Michelle Bowman supports two further cuts, citing labour market risks.
Tensions Between US And China
Tensions between the US and China persist, as President Trump aims to halt China’s oil purchases from Russia and has threatened increased tariffs, though a resolution is hoped for after a meeting with China’s leader. The UK’s economy shows signs of recovery, with slight GDP growth providing temporary relief, although tax increases are anticipated in the Autumn Budget.
The Bank of England may cut rates due to job market concerns. The ILO Unemployment Rate rose to 4.8%, and inflation is expected to peak at around 4% by September. Technically, the GBP/USD pair remains uncertain, struggling near the 20-day Exponential Moving Average, with key support at 1.3140 and resistance at 1.3500.
We recall the sentiment in late 2024 when the pound was gaining against the dollar, but the situation has since reversed. As of today, October 16, 2025, GBP/USD is trading closer to 1.2850 as confidence in the US economy has returned, diverging sharply from the UK’s outlook. This presents a clear opportunity for traders anticipating further dollar strength against the pound.
The aggressive Federal Reserve rate cuts discussed back then did occur through early 2025, but the US economy has proven resilient. Recent data shows the September Non-Farm Payrolls report added a solid 210,000 jobs, far exceeding expectations. Consequently, the CME FedWatch tool now indicates only a 15% probability of another rate cut this year, a dramatic shift from the 94.6% certainty for cuts we saw previously.
UK Economy Struggling With Tax Hikes
In contrast, the UK economy is struggling with the after-effects of the tax hikes implemented in the Autumn Budget of 2024. The latest figures show that Q3 2025 GDP was flat, and while unemployment has fallen to 4.2%, inflation remains sticky at 3.1%, putting the Bank of England in a difficult position. This economic stagnation weighs heavily on the pound’s value.
This divergence in monetary policy outlook reminds us of the 2014-2016 period, when the Federal Reserve began signaling policy tightening while other central banks remained accommodative, leading to a multi-year dollar bull run. We see similar fundamental drivers taking shape now, which historically supports a sustained trend in currency markets.
Given this context, derivative traders should consider strategies that profit from further declines in the GBP/USD pair. Buying put options with strike prices below 1.2800 offers a way to speculate on downside momentum while defining risk. These positions would become profitable if the pound continues its slide towards the next major support level around 1.2700 in the coming weeks.
