The Federal Reserve’s Anticipated Decisions
The Federal Reserve is anticipated to cut rates by 25 bps and signal two more cuts for the year. The BoE is likely to keep the bank rate unchanged. Recent UK data, including a surprising UK CPI and mixed but strong Flash PMIs, signals persistent inflationary pressures.
In technical analysis, GBPUSD is observing buyers pushing towards the 1.3789 target if it remains above 1.3589. For sellers, a decline below 1.3589 could see a drop towards 1.3368. Upcoming data includes UK employment, US retail sales, UK CPI, FOMC policy announcement, BoE rate decision, and US jobless claims. These will impact the market’s movements this week.
The GBPUSD is pushing a critical resistance level, creating an opportunity based on the policy differences between the US and the UK. With the US dollar weakening on expectations of Federal Reserve rate cuts, we should be preparing for a potential breakout. This setup favors strategies that profit from rising prices and increased volatility.
We are looking at buying call options with strike prices above 1.3600, targeting the 1.3750 area as a first objective. Recent data from the CME shows a growing open interest in call options with strikes around 1.3700, suggesting institutional positioning for a continued rally. This approach offers a defined-risk way to capture potential upside if the breakout gathers momentum.
High Event Risk Environment
The upcoming FOMC and BoE meetings, along with critical inflation data, create a high-event risk environment this week. Historically, weeks with dual central bank announcements, as we saw several times in 2023, often lead to sharp increases in volatility. For traders who are less certain of direction but expect a significant price move, a long straddle or strangle strategy could be effective.
The market is heavily anticipating the Fed’s 25 basis point cut this Wednesday, with Fed Fund futures now pricing in an 88% probability according to the CME FedWatch Tool. This confirms the dovish USD narrative that has been building since the weak jobless claims report from early September 2025. Any surprise, such as a more hawkish tone, would immediately challenge the bullish case for the currency pair.
On the other side of the trade, the BoE is expected to hold firm, reinforcing the pound’s strength. With UK core inflation recently printing at 3.1% in August 2025, well above the BoE’s target, the central bank has little room to signal any dovishness. This fundamental divergence between a cutting Fed and a holding BoE is the primary driver of our bullish view.
Our primary risk is a ‘false breakout,’ where the price fails to hold above 1.3590 and reverses lower. To manage this, we can use put options with a strike price just below 1.3550 as a hedge against long positions. Should the level be decisively broken to the downside after the news events, these puts would become our primary bearish position.
