In September, UK industrial production showed a yearly decrease of -2.5%, surpassing predictions of a -1.2% decline. This data adds to the negative momentum for the Pound Sterling, following other disappointing economic figures.
The US Dollar traded strongly after the government funding bill ended a 43-day shutdown, affecting currency pairs like EUR/USD and GBP/USD. Gold continued to rise, touching a three-week high and indicating positive sentiment despite delayed US economic data.
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Stellar (XLM) showed optimistic trading, nearing a resistance level with potential for a price rally. Elsewhere, Hyperliquid (HYPE) remained under pressure following a $4.9 million loss affecting its market maker.
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The recent industrial production figures from September showed a significant miss, with a contraction of 2.5% against an expected -1.2%. This data confirms our view that the UK economy is slowing down much faster than the market has been pricing in. We must now position for continued economic weakness in the final quarter of 2025.
This poor industrial output puts direct downward pressure on the Pound Sterling. The Bank of England, facing this slowdown, will be far less likely to consider raising rates and may even signal future cuts. Therefore, we see opportunities in buying put options on GBP/USD, targeting levels below 1.3000 in the coming weeks.
Inflation and Market Impact
This weak manufacturing data is not an isolated event, as it follows the latest UK CPI report for October, which showed inflation cooling to 2.1%. This gives the central bank more justification to adopt a more dovish stance at its next meeting. The combination of slowing growth and easing inflation is a classic bearish signal for a currency.
For UK equities, this creates a complex picture for the FTSE 100, where a weaker pound benefits international exporters but a poor domestic economy hurts other constituents. This suggests that index-level volatility may be undervalued. We believe buying straddles or strangles on the FTSE 100 could be a prudent way to trade the anticipated increase in price swings.
We saw a similar pattern of weakening manufacturing data lead to market repricing back in the economic slowdown of 2023. During that period, assets exposed to the domestic UK economy underperformed significantly. This historical precedent suggests shorting futures on the more UK-focused FTSE 250 index could be a profitable hedge or directional bet.
