Insights 
VT 
GBP/USD is attempting to stabilise at the 1.3150 level, with traders anticipating the Bank of England’s upcoming interest rate decision. A technical rebound has not occurred, suggesting potential continued volatility for the Pound Sterling.
The Institute for Supply Management’s Purchasing Managers Index dropped to 48.7 in October from September’s 49.1. While demand indicators improved, they remained in contraction, pointing to ongoing struggles in the manufacturing sector, which has declined for eight consecutive months.
Private Data Concerns Amid US Government Shutdown
Due to the US government shutdown, there is increased consideration of private datasets, despite their notorious inaccuracy. With limited official data, there is a risk of misinterpretation due to low response rates and recency bias affecting investor decisions.
In the UK, focus is on the Bank of England’s interest rate decision, with expectations of no change. The Monetary Policy Committee is anticipated to vote six-to-three to maintain current rates. A rate cut vote could draw attention from those closely following policy changes, but no adjustments are likely given the UK’s inflation rate of 3.8%, which exceeds the Bank’s 2% target.
We see GBP/USD struggling to find direction around the 1.3150 mark as the week begins. This level has been a key pivot for us in the past, particularly during the volatile periods of the early 2020s. With the market waiting for a catalyst, trading will likely remain choppy and range-bound for now.
The latest US manufacturing data is concerning, showing an eighth consecutive month of contraction with a reading of 48.7. This pattern of weakening industrial activity is something we’ve seen precede broader economic slowdowns in the past, including the period leading into 2008. This should be weakening the dollar, but the market seems hesitant to fully price this in yet.
US Government Shutdown Impact
The US government shutdown, now entering its third week, is muddying the waters by forcing us to rely on private surveys with low response rates. We saw a similar situation during the shutdown of late 2018, where unreliable data led to sharp, unpredictable market swings. Traders should be cautious about reacting too strongly to any single piece of private data until official figures are available again.
Looking ahead to Thursday, the Bank of England is not expected to offer any relief by cutting rates. With the latest inflation figures still stubbornly high around 3.7%, well above the 2% target, their hands are effectively tied. This policy paralysis leaves the pound without a clear bullish driver from the central bank.
This environment of range-bound action and high event risk is ideal for selling options premium rather than taking a directional bet. We’ve seen one-week implied volatility for GBP/USD options jump to over 10% ahead of the BoE meeting, which is significantly higher than last month’s average of 7%. Strategies like short strangles or iron condors centered around the 1.3150 level could benefit from both the expected price chop and the inevitable post-announcement volatility crush.
