Insights 
VT 
The Pound Sterling (GBP) has decreased by 0.4% against the US Dollar (USD), underperforming all G10 currencies. It has fallen to levels previously seen briefly in early August, according to Scotiabank analysts.
Focus is on the Bank of England (BoE) with markets expecting potential cuts at the meeting on 6th November. Markets are pricing in a 9 basis points move for November and 18 basis points for December. Recent softer inflation data and worsening labour market conditions are affecting short-term rate expectations.
Interest Rate Differentials
Interest rate differentials are negatively impacting the GBP, with UK-US spreads reversing and correlation studies indicating a renewed GBP/spread relationship strength. The recent decline broke the 200-day moving average at 1.3241 and the mid-October low in the mid-1.32s, targeting the August 1 low around 1.3150. The Relative Strength Index (RSI) is low at 30, not yet oversold. The mid-1.31 area is considered crucial, marking the range’s lower bound since May, with expectations of a near-term range between 1.3180 and 1.3280.
The Pound is showing significant weakness, underperforming its peers as we head towards the end of October 2025. All eyes are now on the Bank of England’s meeting scheduled for November 6th, where the market is increasingly expecting a rate cut. We’ve seen this sentiment build after the latest UK CPI for September came in at just 2.1%, well below expectations and adding pressure on the central bank to act.
This bearish view is reinforced by a deteriorating labor market, with the unemployment rate recently climbing to 4.5% and wage growth slowing. The interest rate differential between the UK and the US is also moving decisively against Sterling. In fact, the spread between 2-year UK gilts and US Treasuries has widened by another 10 basis points in favor of the dollar this past week alone.
Positioning Strategies
Given the clear directional bias and the upcoming BoE decision, buying GBP/USD put options seems like a straightforward strategy. This allows us to position for a drop while capping our potential loss ahead of a volatile event. Targeting strikes around the 1.3150 level, which corresponds to the August 2025 low, could be a primary objective.
We’ve already broken below the 200-day moving average, a technically bearish signal for the pound. The mid-1.31s now stands as a critical support level, and a break below it would likely accelerate the decline. This situation is reminiscent of the dovish pivot we saw from the BoE back in 2019, which led to a sustained period of Sterling underperformance.
