Insights 
VT 
The Pound Sterling has weakened to near 1.3400 against the US Dollar as demand for the Greenback increases. This development occurs despite the ongoing US government shutdown, which is perceived to negatively affect the US Dollar’s future outlook.
The US Dollar Index, which measures the Greenback against six major currencies, shows a 0.35% increase to approximately 99.00. Concerns over political changes in Japan and France have driven the US Dollar’s safe-haven demand further.
Political Influences On Currency
In Japan, political developments have influenced the expected interest rate policies. Meanwhile, France is experiencing political instability following the resignation of the prime minister. The US government shutdown persists with anticipated impacts on economic forecasts.
The Bank of England recently maintained interest rates at 4% and showed a cautious approach in its September monetary policy meeting. Market participants are awaiting a speech by BoE Chief Economist Huw Pill to gain insight into future policy directions.
In the US, the Federal Open Market Committee’s September meeting minutes are due, offering insights into potential future interest rate cuts. As uncertainty prevails, the Pound Sterling’s technical indicators suggest a bearish outlook against the US Dollar.
The US Dollar’s current strength, pushing its index near a two-month high of 99.00, presents a clear headwind for the Pound Sterling. We see the GBP/USD pair struggling to hold the 1.3400 level due to this demand for safe havens. This is driven by political instability in Japan and France, making the dollar the preferred currency for now.
Market Considerations and Predictions
While a US government shutdown seems negative for the dollar, we should be cautious about betting against it on this news alone. We saw a similar pattern during the 35-day shutdown that stretched into early 2019, where global risk factors kept the dollar well-supported. The market appears to be prioritizing international uncertainty over domestic political gridlock for the time being.
The upcoming FOMC minutes are the most critical event this week for confirming the Federal Reserve’s new easing path. After the aggressive rate-hiking cycle that ended back in 2023, this first rate cut in September was a major policy pivot. With markets pricing in an 82% chance of two more cuts this year, any hawkish surprise in the minutes could cause significant volatility.
On the Sterling side, the Bank of England is caught between high inflation and a slowing economy, creating uncertainty. UK inflation, which peaked above 10% back in late 2022, has remained stubbornly above the BoE’s 2% target, complicating any decision to ease policy. Huw Pill’s speech will be watched closely for any hints about the bank’s tolerance for this persistent inflation.
Given these conflicting signals—a dovish Fed versus a currently strong dollar—directional bets on GBP/USD are risky. The more compelling trade in the coming weeks may be on volatility itself. Options strategies like straddles could be effective for capturing sharp price swings as the market digests both central bank communications and news on the shutdown.
Technically, the pair remains in a short-term bearish trend below its 20-day moving average around 1.3468. A decisive break below the 1.3400 level could open the door to testing the August low near 1.3140. Any dollar weakness, however, would have to overcome significant resistance around the 1.3726 area to signal a true trend reversal.
