The GBP/USD pair experiences positive momentum for the second day, trading above mid-1.3300s. Dovish Federal Reserve bets and a risk-on environment pressure the US Dollar. The pair rebounded from 1.3260, the lowest since early August.

The global sentiment improved as President Trump reversed his tariff threat on Chinese imports. Expectations of two more Fed rate cuts this year and US government shutdown concerns weigh on the US Dollar. Concurrently, the Bank of England is expected to maintain rates, supporting the Pound.

Recent Trends and Movements

In recent weeks, the GBP/USD dropped below 1.3300 as the US Dollar strengthened against major currencies. The pair touched a ten-week low of 1.3280 after failing to surpass 1.3500. The Greenback remained resilient despite the US shutdown and Fed rate cut predictions.

As of early Monday, the GBP/USD trades softly around 1.3345. US Dollar gains against the Pound, even with Trump’s tariff threats on China. Beijing defended its export restrictions in response but did not impose new tariffs. Economic uncertainty and US-China trade tensions could affect the Greenback, impacting the currency pair.

Given the current date of October 13, 2025, we see a much different picture for GBP/USD than the one described in the historical text. The pair is no longer trading near 1.3300 but is instead hovering around 1.2450, reflecting a stronger dollar environment over the past few years. The old focus on Donald Trump’s trade tariffs has been replaced by a focus on persistent inflation differentials between the UK and the US.

We are seeing stubborn inflation in the UK, with the latest September 2025 figures showing the Consumer Price Index (CPI) at 2.8%, still well above the Bank of England’s 2% target. This has forced the BoE to maintain its Bank Rate at 4.75% and signal a “higher for longer” stance. This monetary policy is providing underlying support for the Pound, preventing a more significant slide.

Future Strategies and Predictions

In contrast, US inflation has cooled more effectively, with its latest CPI reading at a more manageable 2.5%. This has given the Federal Reserve more flexibility, and market pricing now suggests a 60% chance of a rate cut in the first quarter of 2026. This divergence in central bank outlook is the primary driver of currency movements today.

The unpredictable volatility from the trade war era mentioned in the old reports is gone, replaced by volatility around key economic data releases. Looking back, the VIX index, a measure of market volatility, averaged around 18 during the 2018-2019 trade disputes, whereas today it has stabilized closer to a 14 average. This suggests that traders should now focus on options strategies that capture sharp, short-term moves around inflation and employment data announcements.

Considering this, we believe traders could look at buying straddles or strangles on GBP/USD ahead of the next UK and US CPI reports. This strategy would profit from a significant price move in either direction, capitalizing on the data-driven volatility without betting on the direction itself. The implied volatility for one-month options is currently at 7.2%, which is historically moderate and presents a reasonable entry point for such a trade.

Alternatively, for those with a directional view, the interest rate differential favors Sterling strength in the medium term. A bull call spread could be an effective way to position for a potential grind higher in GBP/USD towards the 1.2600 resistance level. This defined-risk strategy would benefit if the Bank of England maintains its hawkish tone while the Fed pivots to a more dovish stance.

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