GBP/USD falls to two-week low as Dollar momentum strengthens

• GBP/USD drops to two-week low as DXY hits 9-week high at 99.39 amid surge in bearish Euro, Yen option trades.
• Bloomberg reports funds betting on continued Dollar strength into year-end as US equities retreat.
• BoE's Catherine Mann warns UK inflation expectations remain near 4%, delaying prospects of rate cuts until 2026.

The GBP/USD tumbles during the North American session as the Greenback reaches a 9-week high as depicted to the US Dollar Index (DXY), hitting 99.39 as hedge funds increase bets on Dollar gains towards the year end, according to a Bloomberg article. The pair trades at 1.3325, down 0.57%.

Sterling sinks to 1.33 as strong Dollar momentum and fiscal worries pressure Pound

US equities turned negative in the day, boosting the Dollar which is registering weekly gains of over 1.63% as of writing. A Bloomberg article revealed that "Funds in Europe and Asia have ramped up option trades this week based on the view that currencies such as the euro and yen will weaken against the dollar."

Data from the Chicago Mercantile Exchange (CME) Group shows that "Bearish option trades on the euro versus the dollar expiring by December saw three times more trading volumes than bullish ones on Wednesday."

Given the backdrop, no fundamental news aside from the US government shutdown is pushing the Greenback higher against most G10 FX currencies. US House Minority Leader Jeffries suggesting there have been no recent talks between House GOP and Democrats.

Across the pond, Bank of England's Catherine Mann said that inflation expectations in the UK remain too high, at around 4%. Consequently, traders are not expecting any rate cuts until April 2026, as money markets project a 0.25% cut to the Bank Rate.

Market participants are also worried about the upcoming Autumn Budget, which is expected to focus on fiscal discipline with the potential of imposing higher taxes, which could weigh on a fragile economy.

GBP/USD Price Chart - Daily