Insights 
VT 
The GBP/USD pair sees a rebound from the 1.3140 support level, rising above 1.3200 as the US Dollar exhibits some weakness. The USD Index falls back from a recent high, affected by concerns about a long US government shutdown and economic implications, thereby aiding the GBP/USD pair.
During the American market session, GBP/USD continued to decline, breaking the 200-day Exponential Moving Average and recording eight red closings out of nine trading days, leading to a -2.46% decrease from top to bottom. The Federal Reserve cut its rate by 25 basis points, but the cautious tone from Fed Chair Jerome Powell surprised market participants, suggesting fewer cuts could occur through 2025.
Fresh Downside Movement
With a fresh downside movement, GBP/USD found itself fluctuating after a 25 basis point interest rate cut by the Federal Reserve, which met expectations yet lacked market-stirring news. The Pound faced further challenges as the Fed stated it plans to reduce Quantitative Easing efforts, shifting its mortgage-backed asset balance sheet to long-term Treasuries by December.
The global market highlights include recent moves in various currency pairs and expectations for upcoming economic events and their potential impacts. The current financial climate requires careful consideration as market shifts can carry risks.
Given the recent bounce in GBP/USD from the 1.3140 level, we see this as a temporary reaction to US dollar weakness rather than a fundamental shift in the pound’s favour. The pair has fallen over 2.4% in just nine trading days, showing strong underlying bearish momentum. This small recovery offers a potentially better entry point for short positions.
The Federal Reserve’s recent actions are the key driver here, creating a hawkish outlook despite the 25 basis point cut. Market pricing, according to the latest CME FedWatch data, now shows an 85% probability that the Fed will hold rates steady in December, squashing hopes for another cut this year. This contrasts sharply with the mood just a month ago and should provide a strong floor for the dollar.
Uk Economic Data
On the UK side, economic data is not providing enough support for Sterling, with the latest figures showing inflation remaining stubbornly high at 3.2%, well above the Bank of England’s target. This puts the BoE in a difficult position, unable to raise rates for fear of hurting growth, which leaves the pound vulnerable against a resolute Fed. This policy divergence is a significant headwind for the GBP/USD pair.
For derivative traders, this environment suggests buying put options on GBP/USD could be a prudent strategy over the next four to six weeks. Options with a December 2025 expiry and a strike price around 1.3000 would protect against a drop below the recent lows. Implied volatility has picked up, but the cost is still reasonable for hedging or speculating on further downside.
The primary risk to this bearish view is a prolonged US government shutdown, which markets are currently watching closely. If a shutdown extends beyond a week or two, it could significantly weaken the US dollar and cause a sharp reversal in GBP/USD. Therefore, setting tight stop-losses on any short positions or using call options with a strike near 1.3300 as a cheap hedge is advised.
We can look back at the 2022-2023 period, when aggressive Fed tightening caused significant dollar strength and pushed GBP/USD to historic lows. While the situation in late 2025 isn’t as extreme, the underlying dynamic of a Fed more hawkish than its peers is rhyming with the past. This historical precedent supports the view that the path of least resistance for the pair remains to the downside.
