The GBP/USD maintains stability during the North American session with a mild decline, as the US Dollar strengthens following Trump’s softened stance on China. The pair trades at 1.3425, after reaching a high of 1.3442, as markets await the US Consumer Price Index (CPI) data release on Friday.

The lack of US economic activity and the Federal Reserve’s blackout period have kept market participants attentive to Trump’s social media activity. Reports indicate Trump is urging China on rare earths, fentanyl, and soybeans, with US-China official talks in Malaysia pending amid a delicate trade truce.

UK Inflation And Market Reactions

UK services inflation may fall below the Bank of England’s expectations, potentially influencing a dovish turn in the British swap curve. Previous UK employment data have raised concerns about Sterling, with the BoE leaning towards a dovish stance despite rate cut forecasts not expected until March 2026.

GBP/USD is forecasted to trade between 1.3400 and 1.3443, with the 50-day SMA at 1.3472 and support at the 20-day SMA of 1.3411. Additional support levels are 1.3309 and 1.3248. The British Pound’s performance against major currencies shows variable percentage changes, with the pound strongest against the Canadian Dollar.

With GBP/USD trading around 1.2550, our immediate focus is the upcoming US Consumer Price Index (CPI) report. The market is quiet ahead of this release, which will be a key signal for the Federal Reserve’s next move. A hot inflation number could strengthen the US dollar, putting pressure on the pound.

We are seeing signs of sticky inflation in the US, with the last reading for August 2025 showing a 3.6% annual rate, well above the Fed’s target. If this week’s September data confirms this trend, options traders may want to position for further dollar strength. This could involve buying USD calls or GBP puts, anticipating that the Fed will have to maintain its restrictive policy stance for longer.

Potential Market Strategies

On the other side of the pair, the UK economy is showing signs of slowing, while inflation remains stubbornly high at 4.3% as of our last update. This puts the Bank of England in a difficult position, as further rate hikes could worsen a potential recession. The uncertainty here suggests that volatility in Sterling could increase, making straddles a potential strategy to play a large price swing in either direction.

We remember the sharp market movements driven by US-China trade rhetoric during the Trump administration years ago. While the headlines are different now, geopolitical tensions surrounding technology supply chains remain a background risk. Any unexpected escalation could trigger a flight to safety, typically benefiting the US dollar and creating sudden moves that could challenge existing positions.

The pair appears to be trading within a range between 1.2500 and 1.2600, a consolidation that often precedes a significant breakout. Selling options outside this range could be a viable strategy to collect premium, but this carries high risk given the looming CPI data. A break below the 1.2500 support level could see a quick move down towards the lows we saw earlier in the year around 1.2430.

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