Insights 
VT 
Fed Rate Cut Expectations
The CME FedWatch Tool presents a 97% possibility of a Fed rate cut in October and a 96% likelihood for December. A Reuters poll shows 115 out of 117 economists foresee a Fed rate reduction of 25 basis points to between 3.75% and 4.00% on 29 October. Meanwhile, 83 economists predict two cuts for the year, while 32 forecast one.
The Pound Sterling weakens following the UK’s Consumer Price Index data for September, indicating a 3.8% rise against expectations of 4.0%. This falls above the Bank of England’s 2% target, with the core CPI at 3.5%, missing expectations of 3.7% and down from August’s 3.6%.
We are seeing GBP/USD drop below the 1.3350 mark as uncertainty dominates the market. This is driven by a flight to the US Dollar because of the government shutdown and the lack of official economic data. At the same time, the Pound is weakening after September’s inflation figures came in softer than expected.
The US data blackout ahead of the anticipated inflation numbers is making everyone nervous, and we should expect sharp price swings. We’ve seen the VIX, a key measure of market fear, jump over 25% this past month to levels not seen since the banking stresses of early 2024. This suggests traders should consider buying options to protect their positions from sudden moves.
Situational Analysis of GBP/USD
A Federal Reserve interest rate cut on October 29 seems almost certain, with fed funds futures pricing in a nearly 97% chance of a 25-basis-point reduction. We have seen this play out before; looking back at the Fed’s pivot in late 2023, the initial rate cuts often failed to weaken the dollar if global growth fears were high. This environment feels similar, so we should not assume a rate cut automatically means a weaker dollar.
On the UK side, September’s inflation reading of 3.8% is still well above the Bank of England’s 2% target, but it is a welcome drop from the 4.5% average we saw in the second quarter of 2025. This easing price pressure reduces the urgency for the BoE to raise rates, which caps any potential upside for the Pound Sterling. Traders could look at selling out-of-the-money call options on GBP/USD, betting that the pair won’t break significantly higher in the near term.
Given the strong dollar demand and a hesitant Bank of England, the path of least resistance for GBP/USD appears to be downwards in the coming weeks. We believe traders should consider strategies that benefit from this downward pressure or, at a minimum, increased volatility. This could involve buying put options on GBP/USD or establishing bearish positions in the futures market, targeting a move towards the 1.3200 support level last tested in July.
