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GBP/USD has experienced a downward trend for three consecutive days, declining by over 0.25%. The exchange rate dropped below the 1.3200 threshold after the Federal Reserve’s decision call was seen as restrictive, with concerns about rate cuts in December.
Sterling weakened against the US Dollar, reaching near 1.3185, during European trading. The pressure on GBP/USD arose from a stronger US Dollar, boosted by remarks following a meeting between US President Donald Trump and Chinese leader Xi Jinping.
Market Conditions and Trends
The GBP/USD pair managed to climb above the 1.3200 mark during the Asian session with modest Dollar weakness. However, market conditions remain cautious, leaving limited room for potential gains above this level.
Additional currency trends include AUD/USD falling below 0.66 and EUR/USD slipping under 1.16. Meanwhile, Gold prices have risen despite a strong Dollar, and US-China trade relations have seen adjustments to tension levels following recent diplomatic discussions.
FXStreet advises that market information comes with risks and uncertainties. Investors should conduct thorough research before making decisions. The information provided does not serve as a recommendation for transactions in any financial asset.
We are seeing a similar dynamic today as we did back when the Fed executed that “hawkish” rate cut under Chairman Powell. The Federal Reserve is signaling it will hold interest rates higher for longer to ensure inflation is fully contained, which is keeping the US Dollar strong. Recent data supports this, as the core PCE price index, the Fed’s preferred inflation gauge, came in at 2.8% year-over-year last quarter, still stubbornly above the 2% target.
Strategic Considerations and Geopolitical Risks
This dollar strength comes at a time of weakness for the pound, much like the period discussed. The Bank of England is facing sluggish GDP growth, which was last reported at only 0.2% for the third quarter of 2025, making it difficult for them to match the Fed’s restrictive stance. This policy divergence is putting sustained downward pressure on the GBP/USD pair.
Given this environment, derivative traders should consider strategies that benefit from a declining or range-bound pound. We see the potential for GBP/USD to retest its year-to-date lows from earlier in 2025. Buying put options on GBP/USD with strike prices below 1.2000 could provide a favorable risk-to-reward setup for the coming weeks.
Furthermore, we must not forget the geopolitical risks that mirror the US-China trade tensions mentioned in the past. Current trade negotiations between Washington and Beijing remain a source of uncertainty, and any negative headline could trigger a flight to safety, further boosting the US Dollar. The US trade deficit with China has widened again to over $30 billion per month, highlighting that these trade frictions are far from resolved.
The elevated uncertainty suggests that volatility in the GBP/USD pair may increase as we approach the end of the year. The CME’s Sterling volatility index (BRR) has already ticked up by 5% this past month. This makes option-based strategies like put spreads attractive, as they can profit from a downward move while helping to manage the cost of purchasing options outright.
