Sterling fell back below 1.3400 against the dollar, down 0.68% and 91 pips, after the Federal Reserve lifted rates to a 3.75–4.00% range. At the midpoint, the US policy rate now exceeds the UK Bank Rate for the first time this year, leaving the Bank of England around 17 hours to respond before its 11:00 GMT decision on Thursday. Markets are positioned for no change, with Bank Rate expected to stay at 3.75%.
Bank Rate has been held at 3.75% since December 2025, and the Monetary Policy Committee has maintained policy for five consecutive meetings. The split is forecast at six members to hold versus three to raise, matching July, when the minority pushed for an immediate move to 4%. UK inflation was 3.1% in August, in line with forecasts, with the increase attributed to motor fuel. In the US, projections place the policy rate at 4.1% at end-2026 and 4.1% a year later; technically, resistance sits at 1.3400, with the 200-day EMA about 40 pips above, while support is near today’s low then 1.3350 and 1.3300. A close above 1.3450 would negate the bearish setup, as the daily Stoch RSI is flat near 16.
Bearish GBP/USD Outlook Following U.S. Rate Hike
With the Federal Reserve pushing its benchmark rate above the Bank of England’s for the first time this year, we recommend derivative traders pivot to a bearish stance on GBP/USD. The immediate strategy is to sell rallies as long as the currency pair remains capped below the key 1.3400 level. This interest rate flip historically favors the Greenback, as similar yield divergence cycles over the last decade have triggered average dollar gains of 3% in the month following the crossover.
We expect the Bank of England to hold its rate at 3.75% tomorrow, which will lock in this yield disadvantage for the Pound. Traders should look to establish short positions with immediate downside targets at 1.3350 and 1.3300. To manage risk, we advise placing stop-losses just above the 200-day Exponential Moving Average, which currently hovers around 1.3440.
Strategy and Risk Management for Sterling Traders
While the daily Stochastic RSI is flat near 16, signaling that the selling is stretched, we believe the downward momentum has room to run. Recent CFTC Commitment of Traders data shows that leveraged funds have started unwinding their sterling net-long positions, which dropped by roughly 12% last week. This shift indicates that institutional money is preparing for a deeper sterling slide, making near-term put options highly attractive.
We suggest using short-dated put options with a strike price of 1.3300 to capture the expected downside over the next fortnight. Alternatively, selling call spreads above 1.3450 offers a reliable way to collect premium while protecting against any unexpected hawkish surprises from the British policymakers. A daily close above 1.3450 will void this bearish setup, and we would exit all short positions immediately if that occurs.
