Insights 
VT 
In the UK, the economy grew by 0.1% in August, according to the Office for National Statistics, after a contraction in July. Weak jobs data and slowing wage growth may prompt a rate cut by the Bank of England, with markets pricing in a 44% chance for a rate cut in December.
Performance Against Other Currencies
The British Pound was the strongest against the Australian Dollar this week. The percentage changes against major currencies showed GBP appreciated against currencies like EUR and JPY, while depreciating against CHF. Markets expect cumulative rate cuts by the Bank of England totaling 53 basis points by the end of 2026.
We’ve seen this playbook before, back during the Trump administration, when a single comment on China could swing the US Dollar. Today, with GBP/USD trading near 1.22, the 1.34 level from that era seems like a distant memory, but the underlying drivers of central bank policy and economic weakness remain the same. The key for traders now is the growing difference in tone between the US Federal Reserve and the Bank of England.
On the US side, inflation remains the primary concern, even after the latest CPI report for September 2025 showed a slight cooling to 3.1%. While job growth has slowed, the Fed seems committed to holding rates steady to ensure inflation is fully contained. The market, according to the CME FedWatch Tool, is only pricing in a 25% chance of a rate cut before March 2026, a stark contrast to the aggressive cuts expected in the past.
Across the pond, the situation is much weaker, fueling expectations for a Bank of England rate cut sooner rather than later. The UK economy contracted by 0.2% in August 2025, and with wage growth stalling, the pressure is on the BoE to act. We are seeing market probabilities for a BoE rate cut in December 2025 climb above 60%, signaling a clear policy divergence from the Fed.
Strategies for Traders
This policy split suggests traders should be prepared for continued downward pressure on the GBP/USD pair. Options traders might consider buying puts on the pound or establishing bearish put spreads to profit from a potential decline towards the 1.20 support level. This strategy allows for a defined risk while capitalizing on the negative sentiment surrounding the UK economy.
Volatility is likely to increase as we approach the central bank meetings in November and December. For those looking to hedge or play this volatility directly, a long straddle on GBP/USD could be effective, profiting from a large price move in either direction. Historically, when central banks diverge this sharply, currency pairs do not stay quiet for long.
Finally, keep an eye on relative strength against other currencies, similar to how the pound performed in the past. While weak against the dollar, the pound’s trajectory against the Euro or Yen will depend on their respective economic data. Derivative trades that pair a weak GBP against a currency with a more stable or hawkish outlook, like the Swiss Franc, could offer alternative opportunities.
