Insights 
VT 
The Pound Sterling showed varied performance, mostly underperforming against core G10 currencies. The EUR/GBP experienced a considerable one-day gain, prompting market participants to anticipate an early rate cut by the Bank of England (BoE). The likelihood of a rate cut by the end of the year has increased, with the probability rising from 20% to 40% over recent days, according to MUFG’s FX analyst Derek Halpenny.
Monetary Policy Anticipations
Market dynamics suggest there is room for expectations to shift due to upcoming jobs and CPI reports occurring between the November and December MPC meetings. The UK Budget on 26th November might indicate a fiscal drag as the government seeks to address a GBP 30bn fiscal gap.
MPC member Alan Taylor expressed views supporting potential monetary easing, citing trade diversion impacts on UK prices. Chinese exports to the UK rose by 12.2% year-on-year in September, while exports to the US declined 27%. If inflation slows in the coming months and wage growth remains dormant, arguments for a December rate cut may strengthen. EUR/GBP is expected to gradually increase towards year-end, supported by market sentiment towards a possible BoE rate cut.
The pound has been underperforming, and we are seeing a notable shift in market sentiment. The probability of a Bank of England rate cut by the end of this year has doubled to 40% in just the last few days. This is a direct reaction to recent jobs data, where traders focused on signs of a cooling labour market; looking at the October 14th report, we saw that wage growth slowed to 5.5%, its third consecutive monthly decline.
For traders, the key period to watch is the gap between the November and December policy meetings. With two inflation reports and two jobs reports due in that window, we expect significant price swings, making it an ideal time to consider volatility strategies using options. Any data that shows further economic weakness will accelerate bets on a December rate cut and move the pound accordingly.
Inflation and Economic Outlook
The case for easing is being supported by the latest inflation figures. The Office for National Statistics reported that September 2025 headline CPI fell to 2.1%, putting it very close to the Bank’s 2% target and strengthening the arguments of doves on the committee. This softening inflation, combined with the expected fiscal tightening in the November 26th budget, puts more pressure on the Bank of England to cut rates to support the economy.
Given this outlook, a bearish stance on Sterling seems appropriate, especially against currencies like the Euro where the central bank is not expected to ease as quickly. We saw a similar dynamic back in late 2019, when a weakening labour market led the Bank of England to signal future cuts, causing the pound to lag. This suggests that positioning for a higher EUR/GBP exchange rate could be a prudent strategy over the coming weeks.
