GBP/USD increased slightly to 1.3319, following softer US inflation data. The US Consumer Price Index (CPI), both headline and core, reported 3% year-on-year, slightly below the expected 3.1%. This strengthened expectations for a rate cut by the Federal Reserve.

In the UK, inflation also slowed, causing a rise in the probability of a Bank of England rate cut in December, now at 67%. The GBP/USD pair showed a slight recovery from last Friday’s losses. Support for Sterling came from positive risk sentiment ahead of the Trump-Xi meeting.

Technical Outlook

The technical outlook for GBP/USD shows a downward bias, with challenges lying ahead at key resistance levels, potentially targeting 1.3400 in the short term. However, if the pair moves below 1.3300, the 200-day Simple Moving Average (SMA) at 1.3226 is the next support level.

In currency performance, the British Pound strengthened against the Japanese Yen by 2.63% in one month. The currency heat map displayed percentage changes across major currencies, with the British Pound shown as particularly strong against the Yen. The ongoing review of fiscal events and economic policies contributes to the fluctuating currency values.

The softer US CPI reading of 3.0% is the primary focus, putting significant pressure on the Federal Reserve. We see market pricing, similar to what was reflected in the CME’s FedWatch tool earlier in the year, now indicating over an 85% probability of a 25-basis-point cut at their upcoming meeting. This expectation is weighing on the US dollar against most major currencies.

Potential Economic Shifts

However, any potential weakness in the dollar might be offset by the situation in the UK. With UK inflation recently reported at 3.5%—down from the 4% levels seen in mid-2025 but still above the Bank’s target—the Bank of England is also signaling a dovish turn. The 67% chance of a December BoE rate cut creates a headwind for any significant Sterling rally, making this a relative policy race.

The upcoming Trump-Xi meeting introduces significant event risk, suggesting a move into options to play the expected volatility. We remember the sharp market swings during the 2018-2019 trade disputes, where headlines could move currency pairs by over a percent in a single session. A long straddle, buying both a call and a put option on GBP/USD, could be a prudent way to position for a large move regardless of the meeting’s outcome.

Looking further ahead to November, the UK’s Autumn Budget on the 26th is the next major catalyst. Since the market has already priced in substantial tax increases from Chancellor Reeves, the real trading opportunity lies in any surprise. We should consider options dated for early December expiry to capture any volatility stemming from a fiscal plan that is either more or less aggressive than anticipated.

From a technical standpoint, the key levels of 1.3400 and 1.3300 serve as excellent strike prices for setting up options positions. A bearish trader might look at buying puts with a 1.3300 strike, targeting a move toward the 200-day SMA at 1.3226. This approach allows for profiting on a potential breakdown while defining risk ahead of the central bank announcements.

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