The Pound Sterling is experiencing a decline against the US Dollar for the third consecutive trading day. The GBP/USD pair dropped to near 1.3370 as the US Dollar strengthens amidst optimism for a US-China trade agreement.

UOB Group’s analysts suggest that the GBP/USD might trade between 1.3385 and 1.3435. If the Pound breaks above 1.3475, it could potentially rise to 1.3505, further testing levels up to 1.3530.

Us China Trade Tensions

The GBP/USD pair continued its descent to around 1.3390 during Asian trading on Tuesday. The strengthening of the US Dollar is attributed to easing tensions between the US and China.

Traders are anticipating the UK Consumer Price Index inflation data for September, expected on Wednesday. This data may provide insights into the Bank of England’s future decisions.

In other markets, gold and silver prices have decreased, influenced by US Dollar strength and trade optimism. Additionally, Bitcoin and other major cryptocurrencies have edged lower amidst global macroeconomic uncertainties.

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Bank Of England’s Inflation Outlook

We are seeing the Pound Sterling slide against the US Dollar for a third straight day, bringing the GBP/USD pair toward the 1.2450 level. This weakness comes as the market digests recent inflation data and re-evaluates central bank policies. The dynamic feels familiar to the choppy periods we navigated back in the early 2020s.

The latest UK Consumer Price Index (CPI) reading for September 2025 came in at 4.2%, which is a notable drop from the cycle highs but remains stubbornly above the Bank of England’s 2% target. This persistent inflation, coupled with slowing growth, puts the BoE in a difficult position, leading us to believe they will hold interest rates steady at 5.5% in their upcoming November meeting. This outlook is currently capping any significant strength in the Pound.

In contrast, the US inflation rate has cooled more convincingly to 3.1%, fueling speculation that the Federal Reserve’s rate-hiking cycle is definitively over. We see a growing probability, now priced at over 40% by the futures market, that the Fed could begin cutting rates as early as the second quarter of 2026. This policy divergence is the central theme that will drive the GBP/USD pair in the weeks ahead.

For derivative traders, this setup suggests positioning for a potential rebound in the Pound. Buying call options on GBP/USD with a strike price around 1.2500 for December 2025 expiry offers a limited-risk way to capture upside if the US Dollar weakens on dovish Fed sentiment. A clear break above the 1.2550 resistance level could open the door for a quicker move toward 1.2600.

We remember how sudden shifts in sentiment, like the US-China trade headlines did back in 2019, can rapidly move currency markets. The current tension surrounding global supply chains presents a similar risk, making it prudent to use options to not only speculate but also to hedge any existing short-pound exposure. Using simple put options can provide a cost-effective shield against an unexpected downturn.

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