Insights 
VT 
There is a potential for the British pound to drop below 1.3000 against the US dollar. Current oversold conditions suggest any further decline may not reach 1.2960.
In recent trading, the pound hit a low of 1.3012. Although this was unexpected, no stabilisation signs appear, making a drop below 1.3000 possible.
Recent Trends
Over the past fortnight, the pound has been trending downwards. Having breached a key level of 1.3100, it closed at 1.3020 after a 0.89% drop.
Further reductions might be limited despite a continued negative outlook. If the pound exceeds 1.3120, it might indicate no further weakening.
The information here discusses market conditions and does not recommend any trading actions. Readers are encouraged to conduct thorough research before any investment decisions.
We see a chance for the Pound to break below 1.3000, driven by a clear divergence in economic outlooks. Recent data from the Office for National Statistics showed UK Q3 GDP growth was a revised-down 0.1%, while last week’s US Non-Farm Payrolls report beat expectations, adding 210,000 jobs. This fundamental weakness in the UK supports the bearish technical picture for GBP/USD.
Trading Strategies
Given the sharp drop and deeply oversold conditions, buying put options with a strike near 1.2980 offers a defined-risk way to position for a break of the 1.3000 level. This approach allows traders to capitalize on a further slide towards the 1.2960 support area. The limited downside potential suggests that holding these positions for a short duration would be prudent.
However, caution is warranted due to how quickly the pound has fallen. We saw a similar rapid decline in the second quarter of 2024, which was followed by a sharp rebound as short positions were covered. Traders could sell out-of-the-money call credit spreads with a ceiling around the 1.3120 resistance level to generate income while maintaining a bearish bias.
The conflicting signals—a strong downtrend versus an oversold market—suggest implied volatility may increase in the coming weeks. The interest rate differential continues to favor the US dollar, as the Federal Reserve has signaled a “higher for longer” stance while the Bank of England is expressing concern about a recession. This environment could make strategies like long straddles attractive for traders anticipating a significant price move, regardless of the direction.
