Insights 
VT 
The Pound Sterling fell to its weakest point in nearly three months, trading around 1.3200 against the US Dollar. Anticipation grows for the Federal Reserve’s decision, expected to cut interest rates by 25 basis points to 3.75%-4.00%, as investors await further monetary cues.
UK Chancellor Rachel Reeves might see increased taxes on households and spending cuts in the upcoming budget. A report suggests the Labour Party plans a fiscal contraction of approximately £30-35 billion, potentially raising the dividend tax rate and introducing new duties on sugar and gambling.
Us Dollar Index Rises
The US Dollar Index rose by 0.2%, nearing 99.00. The market expects the Fed to continue reducing interest rates, with a forecast of another cut in December due to a soft job market and cooling inflation.
Goldman Sachs predicts the Bank of England will lower rates to 3.75%, though contrary expectations exist, with some believing cuts will occur in 2026. The Pound Sterling has weakened against all major currencies, notably struggling against the Australian Dollar.
Technically, the GBP/USD pair has turned bearish, dipping below the 200-day Exponential Moving Average, with the current trend supported by the 14-day Relative Strength Index dropping below 40.00. Key support and resistance levels lie at 1.3140 and 1.3500, respectively.
We see the Federal Reserve is almost certain to cut interest rates by 25 basis points later today. Since this move is fully priced into the market, the key will be the central bank’s guidance on future policy. The soft September jobs report, which showed a gain of only 95,000 jobs, gives the Fed plenty of cover to signal more cuts could be on the way.
Trading Opportunities
The real opportunity for traders is not the rate cut itself, but the potential for a surprise in the Fed’s tone. We believe using options, such as straddles on the US Dollar Index, could be a smart way to trade the expected volatility. This allows a position to profit from a large market move, regardless of the direction.
The Pound Sterling looks weak against the US Dollar, and we expect this trend to continue in the coming weeks. Concerns that the UK government will raise taxes on consumers are weighing heavily on the currency. These fears are justified, especially after the Office for Budget Responsibility recently lowered its 2026 growth forecast to just 0.8%, citing sluggish investment.
Given the bearish outlook, we see opportunities in buying put options on the GBP/USD pair. This provides downside exposure while capping risk at the premium paid for the option. With the pair now trading below its 200-day moving average, a technical breakdown supports a move towards the August low of 1.3140.
The core of our strategy is the diverging paths between the Federal Reserve and the Bank of England. While the Fed is actively cutting rates, the BoE’s next move is uncertain, creating a clear policy advantage for the US Dollar. We saw a similar dynamic in late 2021 when the Fed’s aggressive tightening stance propelled the dollar higher against other currencies.
