The GBP/USD pair is experiencing a positive movement, trading around the mid-1.3400s. This follows a broadly weaker US dollar and represents a third consecutive day of gains, distancing from recent lows near the 1.3250 mark seen earlier in the week.

Despite gains, uncertainties surrounding the UK’s fiscal outlook and BoE rate decisions limit potential for further increases. Technical indicators, such as a breakout above the 100-period SMA and the 38.2% Fibonacci retracement level, suggest potential for additional bullish momentum.

Potential Further Gains

Potential further gains could see the GBP/USD pair heading towards the 1.3480-1.3485 region and potentially clearing the 1.3500 psychological level. Support on the downside is seen near the 1.3400 mark, with deeper corrections possibly finding buying interest around 1.3355, 1.3300, and earlier lows near 1.3250.

Pound Sterling, issued by the Bank of England, is significant in global FX, with key trading pairs like GBP/USD accounting for considerable transactions. Decisions by the BoE, based on inflation, directly influence GBP’s value. Economic data such as GDP and trade balance also play a role in determining the currency’s direction, affecting its strength in international markets.

The Pound is gaining against the Dollar, building on its recent momentum as we move through October 2025. We see this strength coming largely from a weaker US Dollar, especially after last week’s US Consumer Price Index (CPI) figures came in at 2.5%, fueling market speculation that the Federal Reserve may have concluded its tightening cycle. This backdrop creates an opportunity for further gains in the GBP/USD pair.

Given the break above key technical levels, we see a path towards the 1.3485 level in the near term. For derivatives traders, this could mean looking at short-term call options with strike prices around the 1.3500 mark to capture this potential upward move. The positive signals on the charts suggest more gains could be on the horizon if the US Dollar continues to soften.

Domestic Issues and Caution

However, we must be cautious about getting too bullish on the Pound itself, as domestic issues remain a concern. The latest Office for National Statistics data showed UK inflation at a stubborn 2.8% for September 2025, which complicates the Bank of England’s path forward on interest rates. This, combined with UK public sector net debt reaching 99.5% of GDP, creates significant headwinds ahead of the November budget.

This uncertainty from the UK side suggests that any slide back towards the 1.3400 level could be sharp and swift. Traders might consider buying put options with strikes below 1.3350 as a hedge against their bullish positions. A decisive break below that support level could trigger a rapid fall, making such protection valuable.

Given the conflicting signals, we believe strategies that capitalize on a potential move in either direction could be effective. Looking back at the volatility seen after the 2022 mini-budget crisis, we know how quickly sentiment can turn on UK fiscal news. Therefore, setting up straddles or strangles might be a prudent way to trade the expected price swings around the upcoming budget announcement.

Create your live VT Markets account and start trading now.