GBP/USD fell by 0.35% to 1.3219, dipping below the 200-day Simple Moving Average (SMA) of 1.3237. Recent UK data, showing unchanged inflation at 3.8% in September and a softening labour market, contributed to increased odds of a December Bank of England rate cut at about 74%.

The Financial Times reported a potential £20 billion hit to public finances due to a productivity downgrade by the Office for Budget Responsibility. Market participants also foresee a 25-basis-point rate cut by the US Federal Reserve, despite uncertainty surrounding the message from Fed Chair Jerome Powell amid a data blackout.

Technical Analysis and Potential Further Decline

Technical analysis suggests potential further decline in GBP/USD, with a daily close below the 200-day SMA possibly targeting an August 1 low of 1.3141, followed by 1.3100. If it rebounds above 1.3300, the next resistance is the 20-day SMA at 1.3367.

Pound Sterling is the world’s oldest currency and fourth most traded, accounting for 12% of all foreign exchange transactions. Monetary policy by the Bank of England, targeting a 2% inflation rate, has a notable impact on its value. Economic data releases, like the Trade Balance, also play a role in influencing the currency’s strength.

We are seeing GBP/USD break below its 200-day moving average, a significant bearish signal for the weeks ahead. This move is driven by signs of a weakening UK economy and growing expectations that the Bank of England will cut interest rates in December. The market is currently giving this a 74% probability, putting sustained pressure on the pound.

The pressure on Sterling comes as the UK unemployment rate, which we saw climb to 4.5% in the third quarter of 2025, reflects a softening labor market. While inflation has fallen significantly from the highs we saw back in 2023, the September figure of 3.8% is still nearly double the Bank of England’s 2% target. This puts the central bank in a difficult position of having to choose between fighting inflation and supporting a weakening economy.

Federal Reserve Rate Cut Expectations

Across the Atlantic, the Federal Reserve is also expected to cut rates today, but the situation is less clear. A government shutdown, now in its fourth week, has halted the release of crucial economic data like payrolls and inflation reports. This reminds us of the shutdowns in 2013 and 2018, which forced the Fed to navigate with limited information, making Chairman Powell’s tone today highly uncertain.

For derivative traders, this environment suggests positioning for further Sterling weakness against the dollar. We should consider buying put options on GBP/USD with strike prices near 1.3150 and 1.3100 to profit from a continued slide. Shorting cable futures is another direct approach, targeting the August 1st swing low of 1.3141.

However, we must be prepared for surprises, particularly from the Federal Reserve later today. A surprisingly hawkish tone from Powell could cause the US dollar to strengthen rapidly, accelerating the pound’s decline toward its April lows near 1.2707. To hedge against a reversal, buying short-dated call options with a strike price above 1.3300 offers a way to position for a potential bounce if the BoE suddenly pushes back against rate cut talk.

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