The Pound Sterling has reached a nearly three-month low against the US Dollar, dropping to around 1.3200 during the European trading session. This decline coincides with the US Dollar Index rising by 0.2% to near 99.00, as anticipation builds for the Federal Reserve’s monetary policy announcement.

The GBP/USD pair has fallen for the ninth time in the past ten days. Concerns over the UK’s fiscal situation are mounting, as the Office for Budget Responsibility is expected to lower productivity forecasts by 0.3%, potentially widening the fiscal gap by £20 billion.

Interest Rate Expectations

Traders assign a 68% probability to the Bank of England reducing interest rates by 25-basis-points in December. This expectation is driven by softer inflation readings and fiscal pressures, following a report from the British Retail Consortium noting a 0.4% month-on-month drop in food prices, the largest decrease since December 2020.

These economic dynamics coincide ahead of the Finance Minister’s Autumn budget on November 26, influencing market perceptions. External economic factors and domestic fiscal policies continue to play a major role in the currency’s performance. The US central bank is anticipated to cut rates for the second time, impacting the currency exchange landscape.

With the Pound dropping to a three-month low against the Dollar near 1.3200, we see the immediate future defined by central bank divergence. The US Dollar is gaining strength ahead of the Federal Reserve’s policy announcement today, while the Pound is weighed down by domestic issues. This setup suggests that volatility will likely increase in the coming hours and days.

We should be positioned for further Sterling weakness, as concerns over the UK’s fiscal health are growing ahead of the November 26th Autumn budget. Reports of a potential £20 billion fiscal gap, combined with recent data showing UK inflation falling to 3.1% in September 2025, are fueling bets on a Bank of England rate cut. This contrasts with softer-than-expected retail sales figures, which showed a 0.5% decline last month, painting a picture of a slowing UK economy.

Comparative Economic Outlook

While the Federal Reserve is expected to cut rates, the US economy appears more resilient, with core inflation proving sticky at 3.5%. This gives the Fed less reason to pursue aggressive easing compared to the Bank of England, making the US Dollar the more attractive currency by comparison. We see this relative strength as a key driver for the GBP/USD pair heading into year-end.

For traders, buying put options on GBP/USD could be a prudent strategy to profit from a further slide, especially with the high-impact central bank announcements scheduled. This allows for capitalizing on downside moves while limiting risk to the premium paid for the option. We can use shorter-dated options to play the volatility around today’s Fed meeting and longer-dated ones that expire after the Bank of England’s December decision.

Another approach is to consider shorting GBP/USD futures contracts, anticipating that the negative sentiment surrounding the UK’s fiscal situation will intensify. The upcoming budget on November 26th will be a critical event, and any negative surprises could trigger another leg down for the Pound. We view this as a clear directional play on the diverging economic outlooks between the UK and the US.

We have seen this happen before, and the memory of the 2022 mini-budget crisis serves as a valuable lesson. That event demonstrated how quickly market confidence can evaporate due to fiscal uncertainty, leading to a sharp currency devaluation and a spike in government borrowing costs. The current concerns, while less acute, echo that period and justify a cautious, if not outright bearish, stance on Sterling.

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