The GBP/USD experienced its fourth consecutive decline on Wednesday, approaching the 1.3300 mark before recovering slightly to 1.3350, yet still ending in a downturn. Traders await critical economic data releases on Friday from both the UK and US, which include UK Retail Sales and the S&P Global Purchasing Managers Index for September.

The global risk sentiment was challenged as the Trump administration considered retaliation against China’s export controls on rare earths. President Trump has previously used various trade war tactics, including threats of a 155% tariff on Chinese goods, and is now hinting at US export controls on software, raising concerns about potential market impacts.

Key Data Releases

After a pause on Thursday, crucial data releases will resume Friday with UK and US economic indicators. Key data on UK Retail Sales and the S&P Global PMI will be released during the London session. US inflation data, specifically the Consumer Price Index, will follow to round off the week, significant as the last major inflation measure before the Federal Reserve meets on October 29.

The Pound Sterling is one of the world’s oldest currencies and a major trading currency, accounting for 12% of foreign exchange transactions. It is heavily influenced by the Bank of England’s monetary policy, primarily focused on maintaining a stable inflation rate. Economic data, such as GDP and PMIs, affect sterling’s value, with a strong economy boosting foreign investment.

With GBP/USD testing the 1.3300 level, we see significant downside risk driven by global risk aversion. The ongoing US-China trade tensions, particularly threats of US software export controls, are souring market sentiment. This environment favors the safe-haven US dollar, suggesting that any rallies in Cable are likely to be sold into.

Market Volatility

We are positioning for continued volatility, as reflected by the VIX index, which we saw push above 20 for the first time in several months this past week. This heightened sense of fear supports a stronger dollar and weighs on sterling. From our perspective in October 2025, this echoes the risk-off periods we saw during the trade disputes of 2018-2019, which consistently punished risk-correlated currencies like the pound.

Friday’s UK retail sales and PMI data will be pivotal for the Bank of England’s next move. We’ve seen the UK Composite PMI dip from 52.8 to 50.6 over the past quarter, and another weak reading could force the BoE to signal a pause in its rate hike cycle. A disappointing number would likely see derivative traders increase short positions on the pound against the euro and the dollar.

The US Consumer Price Index release on Friday is the week’s main event, coming just before the Federal Reserve’s meeting on October 29. We remember how the Fed was forced to act aggressively back in 2022 and 2023 when inflation proved persistent. A hot CPI print would cement expectations for another rate hike, likely pushing GBP/USD decisively through the 1.3300 support level.

Given this backdrop, buying downside protection on GBP/USD seems like a reasonable approach. One-month put options with a strike price around 1.3200 offer a way to hedge against a sharp drop following the data releases. The cost of these options has risen, with implied volatility now at its highest point since August, indicating the market is bracing for a significant price swing.

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