Insights 
VT 
During the North American session on Friday, GBP/USD dipped to 1.3220, influenced by the Autumn Budget. Despite this dip, the pair still closed the week with a near 1% gain, having hit a daily high of 1.3244.
On Friday, GBP/USD continued its ascent for a seventh consecutive session, hovering around 1.3240 in Asian trading hours. This rise was primarily due to the weakening of the US Dollar, amid increasing Federal Reserve rate cut expectations for December.
Impact of the Autumn Budget
By Thursday, GBP/USD held steady at around 1.3230, as the market processed the UK’s Autumn Budget. This stability was noted during lower trading volumes, as US markets were closed for Thanksgiving, with the rate at 1.3232 later that day.
We are seeing strong momentum behind the idea that the Federal Reserve will cut interest rates in December. The market is currently pricing in an 88% chance of a rate cut according to CME FedWatch Tool data, which explains the US dollar’s recent weakness. This sentiment has pushed pairs like GBP/USD toward multi-month highs.
The British pound is benefiting from this dollar weakness, with GBP/USD holding steady above 1.3200. While US inflation has cooled to 2.8% according to the latest CPI report, UK inflation remains stickier at 3.4%, suggesting the Bank of England may hold rates for longer. This growing interest rate differential is providing a tailwind for the pound in the short term.
Future Market Speculations
Looking back, the surge in gold to over $4,200 per ounce is a clear reminder of the high inflation we experienced through 2024, and traders are wary of being caught on the wrong side again. We believe buying call options on GBP/USD could be a prudent way to gain upside exposure to further dollar weakness while defining risk. This is especially relevant as the pair has broken through several key resistance levels this month.
Upcoming data will be crucial for confirming the market’s dovish view on the Fed. All eyes are on next week’s Non-Farm Payrolls report, where analysts expect a modest gain of just 110,000 jobs, a significant slowdown from the averages seen earlier in the year. A weaker-than-expected number would almost certainly solidify a December rate cut.
With the market so heavily positioned for a cut, the biggest risk is a surprise hawkish shift from the Fed or a string of unexpectedly strong US economic data. Therefore, we should consider hedging long positions with out-of-the-money puts on currency pairs like EUR/USD and GBP/USD. This provides a cheap way to protect against a sudden and sharp reversal in the dollar.
