The Pound Sterling continues to weaken against the US Dollar, marking a fourth consecutive day of losses, with the GBP/USD pair nearing a six-month low at 1.3116. The strengthening US Dollar is attributed to reduced speculation about a dovish Federal Reserve policy and optimism on a US-China trade deal.

The GBP/USD trades slightly higher at around 1.3160, following three days of losses, as the US Dollar faces challenges amid increased expectations of a Federal Reserve rate cut. The CME FedWatch Tool indicates a 71% probability of a December rate cut, up from 66% the previous day.

Pound Sterling Against The Dollar

The Pound Sterling has declined over 2% against the US Dollar in October, as concerns over the UK’s fiscal landscape and hawkish comments from Fed Chair Powell continue to weigh on it. The GBP/USD pair recently dipped below the 1.3100 support for the first time since April.

In other currency movements, the EUR/USD slips to a three-month low amid hawkish tones from the Federal Reserve, while gold faces another weekly decline, dropping below $4,000. Cryptocurrency markets experience volatility, with Bitcoin and major altcoins rebounding after consecutive losses. The Bitcoin whitepaper celebrates its 17th anniversary, reflecting the asset’s transformation into an institutional-grade asset.

The Pound Sterling continues its slide against the US Dollar, trading near six-month lows around the 1.3116 mark. We see this weakness as being driven by ongoing worries about the UK’s fiscal situation, with national debt having remained stubbornly above 90% of GDP since the inflation crisis of the early 2020s. This prolonged pressure makes it difficult for Sterling to find a solid footing.

On the other side of the pair, the US Dollar is benefiting from conflicting signals from the Federal Reserve. Fed officials are maintaining a hawkish tone, but the derivatives market is increasingly betting on a policy shift. The CME FedWatch Tool now shows a 71% probability of a rate cut in December, signaling a major disconnect between the market and the central bank.

Tension Between Fed Guidance And Market Expectation

This divergence stems from economic data that we have been tracking closely. While core inflation has struggled to fall below 3%, justifying the Fed’s tough talk, recent non-farm payroll reports have shown a distinct cooling in the labor market. Traders are pricing in the idea that weakening employment will force the Fed’s hand, regardless of their current commentary.

For our positioning in the coming weeks, this tension between Fed guidance and market expectation points to a period of heightened volatility. Options traders should consider strategies that profit from a large price swing in either direction, as the current standoff is unlikely to last. The upcoming Bank of England meeting will be a critical catalyst that could force a breakout from this tight range.

This is primarily a US Dollar story, as the Euro is also hitting multi-month lows against the Greenback. We also note that broader risk appetite is fragile, with the Dow Jones stalling and major tech stocks like Meta Platforms continuing to sell off after recent earnings. This cautious mood across markets suggests traders should be prepared for sharp, defensive moves.

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