During the North American session on Tuesday, GBP/USD dropped over 0.17% as the US Dollar Index reached a three-day high. The pair traded at 1.3384 after hitting a high of 1.3417.

The government shutdown in the US and upcoming Consumer Price Index (CPI) data release contributed to reduced market activity. In the UK, Public Sector Net Borrowing for September was 20.24 billion pounds, below expectations of 20.5 billion pounds.

Fiscal Planning and Impacts

UK Chancellor Rachel Reeves plans to raise taxes and cut spending to meet fiscal targets and manage British borrowing costs. She also seeks a larger fiscal buffer, potentially requiring trade-offs in the November 26 budget.

Traders await UK inflation data on Wednesday, with CPI predicted to rise from 3.8% to 4% in September. A deviation from this estimate could influence the Bank of England’s monetary policy decisions.

A heat map displays percentage changes in major currencies against each other, with the British Pound and US Dollar among the monitored pairs. Christian Borjon, a retail trader since 2010, focuses on technical analysis and started as a swing trader while working outside the financial sector.

We are seeing renewed weakness in the pound, which is currently struggling around the 1.2250 level as of October 21, 2025. This move is largely driven by a resurgent US dollar, with the DXY pushing past 107 this week on persistent inflation fears. The situation feels reminiscent of past periods, like the one in the late 2010s, where a strong dollar dictated the pace for GBP/USD.

Upcoming Economic Indicators

All eyes are now on the upcoming US Core PCE data, scheduled for release next week on October 31. Current market consensus is for a 0.3% month-over-month increase, a figure that could cement the Federal Reserve’s hawkish stance. Derivative traders should consider positioning for heightened volatility around this release, as a hotter-than-expected number could trigger a significant down-leg in GBP/USD.

On the UK side, fiscal policy remains a key concern, much as it was years ago when Chancellor Reeves first outlined her goals. Last week’s Public Sector Net Borrowing figures came in at £18.5 billion for September, slightly above forecasts and keeping pressure on the government’s budget. Her upcoming Autumn Statement will be scrutinized for any signs of spending cuts, which could further weigh on the UK’s growth outlook and the pound.

We are also closely watching UK inflation data due tomorrow, with the headline CPI for September 2025 expected to hold firm at 3.1%. We saw a similar dynamic back in 2023 when a surprise CPI print altered the Bank of England’s expected path. Any upside surprise now could force the BoE to maintain its restrictive policy, creating a complex push-pull dynamic for the currency pair.

Given the dual pressures from both US and UK data releases in the coming weeks, a sharp move in either direction is plausible. This environment seems well-suited for derivative strategies that profit from a spike in volatility, such as long straddles or strangles. Traders might consider buying options to gain exposure while defining their maximum risk ahead of these key economic events.

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