Insights 
VT 
The Pound Sterling trades flat against the US Dollar at 1.3470. Despite pressure on the US Dollar Index, Sterling weakness persists due to expectations of further Bank of England interest rate cuts.
This sentiment emerged after UK labour data showed an unemployment rate increase to 4.8%, the highest since March 2021. Money market consensus indicates a rate cut of 46 basis points by the BoE this year, despite dissenting voices within the BoE.
Opposition to Rate Cuts
BoE Monetary Policy Committee member Catherine Mann opposes further cuts, citing moderate labour market weakening. Chief Economist Huw Pill echoes caution against rapid rate reductions due to persistent inflation risks.
UK Chancellor announced no wealth tax increase in the upcoming budget, though further tax rise and spending cuts are expected. Currently, the British Pound is weakest against the Swiss Franc.
The US Dollar is experiencing pressure due to trade tensions with China and anticipated Federal Reserve rate cuts. Washington imposed tariffs on China amidst rare earth export controls disputes.
Market expectations include at least a 50-basis-point Fed rate cut, exacerbating USD pressure. The GBP/USD pair remains volatile, facing technical resistance near key moving averages. The lower support level is at 1.3140, with resistance at 1.3500.
We see growing pressure on the Pound Sterling, as markets are now pricing in almost two full rate cuts from the Bank of England before the year ends. This dovishness stems from the recent weak jobs report, which showed UK unemployment climbing to a four-year high of 4.8%. However, the latest September inflation report showed Core CPI remained stubbornly high at 3.1%, creating a difficult situation for policymakers.
Given that the US dollar is also facing pressure, shorting GBP/USD might be a slow trade. A more effective strategy could be to position against currencies with a less dovish central bank, such as the Swiss Franc, which has strengthened on safe-haven flows. The data shows Sterling has already fallen over 0.50% against the Franc today alone, suggesting this is a path of least resistance.
Derivative Trading Strategies
For derivative traders, buying put options on Sterling, particularly against the Franc or Euro, offers a defined-risk way to profit from further downside. We are looking at options expiring after the BoE’s November meeting to capture any potential dovish pivot. The conflicting messages from BoE members Mann and Pill against the market’s view may keep option volatility elevated, making spreads an attractive strategy.
We remember how the BoE was forced into a rapid hiking cycle back in 2022-2023, and it seems that tightening is now showing its full effect on the UK economy. Simultaneously, the Federal Reserve faces its own pressure to cut rates, especially after the latest US Non-Farm Payrolls report for September came in at a disappointing 85,000. This dual central bank weakness means that relative economic performance is key.
The upcoming Autumn Budget next week is a key event risk that needs to be monitored closely. Chancellor Reeves has signaled fiscal tightening through tax rises and spending cuts, which could further dampen UK growth prospects. This would place even more pressure on the Bank of England to offset the slowdown with monetary easing.
