Insights 
VT 
The Pound Sterling remains relatively unchanged, with the market exhibiting a soft undertone. Analysts at Scotiabank report that sentiment, as shown by short-term risk reversals, has shifted slightly against the pound. Concerns include potential tax hikes in the budget and the possibility that the Bank of England may cut rates in the upcoming meeting, though only 6-7 basis points of easing are expected.
The currency pair continues to press against key support levels at 1.3140/45, which are both range lows and major retracement supports. While there is no decisive break lower on the daily chart yet, a soft close for the week may indicate increased risk of downward movement. This could see the pound moving into a slightly lower range, between 1.2950 and 1.3050.
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Market insights are curated by the FXStreet Insights Team, selecting observations from well-regarded experts. These notes include contributions from both commercial sources and internal or external analysts, providing a broad spectrum of market perspectives.
The Pound retains a soft undertone, and we are seeing it lean heavily on the key 1.3140 support level. This pressure is building ahead of the Bank of England’s interest rate decision next week, creating uncertainty. A weak close for the week could signal a greater risk of a downward move.
This sentiment is being driven by concerns over potential tax hikes and the central bank’s policy path. With recent government data showing UK third-quarter GDP contracted by a slight 0.1% and inflation remaining stubbornly above target at 3.1%, the market is on edge. We should therefore consider buying GBP/USD put options to prepare for a potential break lower.
Given the technical focus on the 1.3140 level, put options with a strike price around 1.3100 expiring in late November or December look appealing. If support breaks, this strategy would position us to benefit from a move towards the 1.2950 area. This gives the trade time to develop following the bank’s announcement on November 6th.
Strategy for Managing Implied Volatility
Implied volatility is rising ahead of the meeting, which makes options more expensive but also highlights the market’s expectation of a significant price swing. To manage the higher premium cost, a bearish put spread could be a more efficient alternative to buying puts outright. This involves buying the 1.3100 put while simultaneously selling a lower strike put, such as the 1.2950.
We have seen how quickly sentiment can shift on the Pound, especially remembering the fiscal policy volatility back in 2022. The current setup, with markets only pricing in a small 6-7 basis point cut, leaves room for a surprise that could accelerate a downward trend. A defined-risk options strategy seems like a prudent way to position for that possibility.
