Insights 
VT 
GBP/USD experienced a 0.5% increase on news of a potential US/UK trade deal, but this gain was quickly lost. The pair is putting pressure on a key support zone and trades below 1.3300.
Details of an initial trade deal between the US and UK are anticipated, setting groundwork for further discussions. Trade negotiations come as the GBP/USD faces pressure due to policy divergence between the Bank of England and the Federal Reserve.
Midweek Trading Dynamics
In midweek trading, the US Dollar strengthened, as the Federal Reserve left policy rates unchanged at 4.25%-4.5%, adopting a cautious stance on easing. This has contributed to GBP/USD losing more than 0.5%, reversing much of its weekly gains.
At first glance, one might expect an announcement surrounding a UK-US trade arrangement—no matter how early-stage—to lend meaningful support to Sterling. After all, the initial 0.5% lift in GBP/USD seemed to reflect improving optimism. But that strength reversed quickly, with the pair now trading under the 1.3300 threshold, unable to hold above prior support which, for a technical eye, now risks flipping into resistance. That initial optimism may have been premature, as markets appeared to reassess the real weight of such diplomatic signals when set against the harder constraints of monetary policy.
Looking deeper, the Pound’s move seems less about trade diplomacy and more about a widening disparity between rate expectations. The Federal Reserve opted to keep its main policy rate at 4.25%–4.5%, surprising those who had hoped for a clearer indicator towards easing. Without any move in either direction and with softer guidance, Powell’s tone created just enough doubt to drive safe-haven interest toward the Greenback. From our point of view, what matters more than unchanged rates is what wasn’t said—particularly, any strong indication of a pivot.
This shift in the Dollar’s favour laid bare the vulnerability in GBP/USD, which had been rallying on thinner momentum. The pair dropped more than 0.5% following the decision, retracing much of the gains that traders had priced in at the start of the week. With this, Sterling continues to bear the weight of policy hesitancy at home. Bailey’s lack of urgency around tightening, despite domestic inflation pressures, creates an increasingly difficult stance for the Pound to sustain—particularly when Fed officials keep a stoic front and markets price in higher-for-longer rates in the US.
Positioning Around GBP/USD
Positioning around GBP/USD, as it inches closer to a long-watched support zone, should take this rate differential into full view. The market has been aware of an undercurrent of divergence for some time, but with central banks now taking firmer postures, the reaction has started to feed through. The weakness we’re seeing is not just temporary disappointment but a shift away from what had been a more optimistic forward curve for Sterling.
From here, our focus turns to whether this support area holds or whether traders carve out a path toward the mid-1.3200s or lower. Events in the past few sessions suggest renewed appetite for Dollar purchases during corrections, which bears watching. Sentiment seems increasingly driven by real yield dynamics rather than headline hope, and that could accelerate positioning adjustments in short-term derivative markets.
In practical terms, that means evaluating whether implied volatility reflects the current directional lean or simply past assumptions of stabilisation. We need to keep a close eye not only on spot levels but also on the shape of risk reversals and skew shifts around shorter maturities, which may provide an early read on how exposed larger players are to downside breaks. With the Fed having provided little ammunition for doves, the next few weeks may require adjustment, not reinforcement, of existing GBP upside structures.
Be prepared to reconsider earlier expiry strategies if pricing begins to consistently reflect Dollar strength beyond near-term data reactions.
