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VT 
GBP/USD Market Overview
GBP/USD has fallen towards 1.3280, reaching a two-month low amid UK fiscal concerns and strong US Dollar demand. The US Dollar Index is near a two-month high of 99.56, suppressing potential recovery for the British Pound against the Dollar.
Despite expectations of further Federal Reserve interest rate cuts by December, the US Dollar remains in demand. The CME FedWatch tool indicates an over 80% probability of a 50-basis-point rate cut.
Federal Open Market Committee members acknowledge the need for monetary easing as labour market conditions weaken. Nevertheless, a Fed Governor cautioned against excessive rate cuts, suggesting inflation targets may not be met soon.
New US data reveals a fragile consumer outlook, with the University of Michigan’s Consumer Sentiment Index dropping to 55 in October from 55.1. This supports the notion that the Fed could maintain a dovish approach.
UK Fiscal Challenges and Market Impact
In the UK, fiscal challenges continue to erode confidence, with potential tax hikes by the Chancellor further impacting growth. Bank of England MPC member Catherine Mann emphasised the need for prolonged restrictive monetary policy to manage inflation risks.
The provided table shows the percentage change of the British Pound against major currencies, noting its strength against the New Zealand Dollar.
The current environment strongly suggests positioning for further declines in the GBP/USD pair. Persistent concerns over the UK’s fiscal health are weighing heavily on the pound sterling. Meanwhile, the US dollar continues to attract safe-haven bids despite expectations of Federal Reserve rate cuts.
We see this reflected in the latest figures from the Office for National Statistics, which showed the UK’s budget deficit for September widened to a worse-than-expected £18.5 billion. This increases the pressure on the Chancellor ahead of the November Autumn Statement, making tax hikes seem more likely. Consequently, traders should consider buying put options to profit from a potential drop towards the 1.3150 level.
In the US, the dollar’s strength is happening even as the economy shows signs of slowing. For example, the Non-Farm Payrolls report from October 3rd, 2025, showed job growth cooled to just 95,000. This confirms the Fed’s dovish view, but for now, global uncertainty is keeping the dollar well-supported.
The anxiety around UK fiscal policy is creating echoes of the market turmoil we witnessed back in the autumn of 2022. That period showed how quickly confidence can evaporate when fiscal plans are seen as unsustainable. This historical precedent justifies hedging any long sterling positions, perhaps by shorting GBP futures contracts.
We are seeing this bearish sentiment priced into the derivatives market directly. One-month risk reversals for GBP/USD have fallen to -1.2, showing a clear preference for put options that protect against a fall. This suggests that establishing bearish positions, such as a bear put spread, aligns with the current market flow.
