Insights 
VT 
GBP/USD remained stable during Wednesday’s North American session despite a UK inflation report that weakened the Pound Sterling. The pair steadied at 1.3362 after initially dropping to 1.3305 following the release of CPI data. The UK Consumer Price Index for September stayed unchanged from August at 3.8% YoY, missing the 4% increase forecast. Core CPI fell to 3.5% YoY, down from 3.6%, below the expected 3.7% rise.
Market Expectations and Technical Analysis
Services inflation held at 4.7%, under the anticipated 4.9%, affecting expectations for possible Bank of England rate cuts. Markets are now anticipating a 19 basis points cut during the BoE’s December meeting, up from the previous expectation of 11 basis points. In the US, the upcoming Federal Reserve meeting is expected to result in a 25 basis point rate cut, depending on the CPI report scheduled for Friday.
Technically, GBP/USD has a neutral to slightly negative bias. A close above the 20-day SMA at 1.3399 could lead to testing of the 50-day SMA at 1.3465. A fall below 1.3300 could push it towards the October low of 1.3248. GBP/USD experienced a 2% decline from mid-September highs, and recent data has reinforced this trend, with the British Pound performing strongest against the Japanese Yen.
Given the UK inflation data undershooting expectations, we see a clear signal for derivative traders. The increased probability of a Bank of England rate cut in December suggests initiating bearish positions on the Pound Sterling. This can be done by buying GBP/USD put options or selling futures contracts, targeting levels below the current support.
The 3.8% inflation figure, while still elevated, represents a significant cooling from the multi-decade highs we saw back in 2022 and 2023, which peaked over 11%. This historical context makes the current miss more impactful for the Bank of England’s decision-making process. The steady, yet lower-than-forecast, services inflation of 4.7% reinforces the view that the disinflationary trend is taking hold, giving the BoE more room to ease policy.
Strategy and Outlook
On the other side of the pair, the US Federal Reserve is also expected to cut rates next week, but this has been largely priced in by the market. The sustained investment in AI, a trend we’ve seen since the boom in 2023 and 2024, points to continued productivity gains and underlying strength in the US corporate sector. This creates a policy divergence where the surprise factor now lies with a more dovish Bank of England, making the US Dollar relatively more attractive.
For the coming weeks, a practical strategy would be to buy GBP/USD put options with a strike price around 1.3300, expiring after the December BoE meeting. This allows us to capitalize on the expected downward move while capping our maximum loss. If the pair breaks below the recent low of 1.3248, the 200-day moving average at 1.3212 becomes the next logical target.
Volatility is likely to increase with the US CPI report on Friday and the Fed meeting next week. Traders could consider using option spreads, such as a bear put spread, to lower the cost of entry and define risk. This involves buying a higher-strike put and selling a lower-strike put simultaneously.
Looking at the technical picture, any rally in GBP/USD toward the 20-day Simple Moving Average at 1.3399 should be viewed as a selling opportunity. The pair has already declined roughly 2% from its mid-September high of 1.3726. This new data reinforces the bearish momentum and suggests the path of least resistance is lower.
