Insights 
VT 
GBP/USD has decreased to near 1.3250 as expectations grow for a potential Bank of England (BoE) rate cut. Traders are currently estimating a 68% chance of a quarter-point cut by December, amid signs of easing inflation.
Recent data showed UK food prices falling at the fastest rate in nearly five years. This, coupled with a downgraded UK productivity growth forecast by the Office for Budget Responsibility, has increased concerns about a fiscal shortfall ahead of the Chancellor’s budget.
US Dollar Weakness
The US Dollar remains weak as markets await the US Federal Reserve’s policy decision. There is a widely anticipated 25-basis-point rate cut, with futures markets indicating a 91% probability of another cut in December.
Future guidance from Fed Chair Jerome Powell could influence expectations for further rate reductions. The October Fed Survey suggests potential additional cuts over the next meetings.
The Pound Sterling (GBP) is a key currency, accounting for 12% of global transactions. Economic indicators, alongside decisions by the BoE, significantly affect its value, with inflation and interest rates central to these considerations. Economic data and trade balance figures also play a role in influencing Sterling’s direction.
We are seeing GBP/USD testing the 1.3250 level as significant pressure mounts on the Bank of England. With markets pricing in a 68% chance of a rate cut in December, sterling’s path of least resistance appears to be downward. This sentiment is being driven by the latest ONS data showing UK headline inflation fell to 2.1% in September 2025, getting very close to the BoE’s target.
Fiscal Constraints and Currency Strategy
The issue for the pound is compounded by serious fiscal constraints ahead of the November budget. The expected £35 billion shortfall is particularly concerning as the UK’s debt-to-GDP ratio has recently climbed above 100%, a level not seen since the post-war recovery in the early 1960s. This situation leaves the BoE with little choice but to consider easing policy to support a fragile economy.
While the US Dollar is also soft, the Federal Reserve’s decision later today is pivotal. A quarter-point cut is almost entirely priced in, a reaction to slowing job growth and a core PCE inflation reading that has cooled to 2.5%. Therefore, we should focus all our attention on Jerome Powell’s forward guidance for any hints about the pace of future cuts compared to the BoE’s.
This environment, where both central banks are easing, suggests a period of heightened volatility, making options strategies like straddles or strangles attractive to capture sharp moves in either direction. We saw a similar dynamic back in 2019, where currency pairs became choppy as central banks raced to cut rates. In the coming weeks, a key strategy will be to trade the relative pace of easing between the Fed and the BoE rather than just the outright direction of the pair.
