Insights 
VT 
The Swaps Market Outlook
The swaps market suggests the chances for a 25 basis points reduction to 3.75% during the BOE’s November 6 meeting are at 25%. Over 12 months, anticipated easing totals 50 basis points, projecting a policy rate bottom of 3.50%. The forecasted fiscal drag from the coming UK budget on November 26 leaves room for more BOE easing, predicting GBP’s continued underperformance against the EUR.
We are seeing the British Pound struggle, even with surprisingly strong retail sales and PMI numbers just released for September and October. This disconnect suggests the market is looking past immediate economic health. The focus has clearly shifted to the Bank of England’s future policy path.
The key driver is the growing expectation of monetary easing from the Bank of England, with the swaps market pricing a one-in-four chance of a rate cut as soon as the November 6th meeting. An anticipated fiscal tightening in the upcoming November 26th budget is fueling bets that the BOE will need to cut rates further to support the economy. This outlook is putting sustained pressure on the pound.
UK Inflation and Fiscal Strategy
We can see this policy divergence playing out when looking at recent inflation figures; the UK’s Consumer Price Index (CPI) has eased to 2.8% in September 2025, down from over 3.5% earlier in the year. This downward trend gives the BOE cover to consider easing, a situation we saw play out similarly in the 2019 cycle when forward guidance on rates overshadowed mixed economic data. This historical pattern strengthens the case for a weaker sterling.
For derivative traders, this suggests positioning for further GBP weakness, particularly against the Euro. With the European Central Bank signaling a pause in its own easing cycle, a long EUR/GBP position through options or futures appears attractive. This strategy capitalizes on the widening monetary policy divergence between the two central banks.
Volatility is expected around the key dates of the BOE meeting on November 6th and the Q3 GDP release on November 13th. Traders could use options, such as buying GBP puts with a December expiry, to define risk while maintaining downside exposure. An unexpectedly hawkish statement from the BOE or a major upside surprise in the GDP figures are the primary risks to this bearish view.
