Insights 
VT 
The Pound Sterling has weakened, trading near 1.3420 against the US Dollar, which has strengthened despite the risk of mass lay-offs due to a partial US government shutdown. The US Dollar Index, which measures the currency against six major currencies, has increased by 0.55% to approximately 98.25. Investors are awaiting a speech by the Bank of England Governor Andrew Bailey.
The current market conditions show mixed performances from the Pound against significant currencies. The BoE’s previous meeting predicted inflation would peak around 4% in September. However, recent surveys suggest one-year forward inflation expectations increased slightly to 3.5%. The revised UK Services PMI for September came in at 50.8, lower than the preliminary 51.9, indicating slower-than-anticipated growth.
Gbp Usd Struggles
The GBP/USD pair is struggling to rise above the 20-day EMA, currently around 1.3476, with the 14-day RSI indicating a sideways trend. The lower support is the August 1 low of 1.3140, while resistance is at the September 17 high of 1.3726. The Bank of England implements monetary policy to manage inflation and economic stability, employing tools such as interest rate adjustments, quantitative easing, and tightening to influence the economy and the value of the Pound Sterling.
Given the pound’s slide to 1.3420 against a surprisingly strong dollar, we see the market is ignoring the political noise from the US government shutdown. This is a pattern we have seen before; during the lengthy 35-day shutdown in late 2018 and early 2019, for example, the US stock market actually rallied significantly. The market is clearly focused on underlying economic strength rather than temporary political gridlock.
The dollar’s rebound is being fueled by strong economic data that suggests the Federal Reserve will keep interest rates higher for longer. The most recent non-farm payrolls report for September 2025 showed the US economy added a robust 250,000 jobs, beating expectations. With US core inflation still holding firm at 3.7%, the dollar remains the more attractive currency compared to the pound.
Uk Economy Challenges
Meanwhile, the UK economy is sending mixed signals, putting the Bank of England in a difficult position. Inflation remains sticky, with the latest reports from August 2025 showing the Consumer Price Index (CPI) at 3.9%, well above the 2% target. However, slowing service sector growth, as shown by the recent PMI figure of 50.8, suggests that rate hikes are starting to bite, making a rate cut a possibility before year-end.
For derivative traders, this uncertainty ahead of Governor Bailey’s speech points towards rising volatility. We believe buying near-term GBP/USD straddles could be an effective way to play a potential sharp move, regardless of the direction Bailey’s comments push the market. Implied volatility has already ticked up to 9.2% for one-month options, and we expect this to increase as the speech approaches.
Given the downward pressure, traders with a bearish view on sterling should consider buying put options with strike prices below the current level, targeting the August 2025 low of 1.3140 as a key support level. Conversely, any attempt to rally will likely meet resistance near the 20-day moving average around 1.3476. Selling call options with a strike price above this level could be a way to collect premium while betting on continued weakness for the pound.
