Insights 
VT 
GBP/USD holds steady around 1.3140 at the week’s start, as traders anticipate the Bank of England’s upcoming interest rate announcement. There is a possibility of a 25-basis-point rate cut to 3.75%, especially after UK consumer price growth has slowed and labour demand shows signs of easing.
The Institute for Supply Management’s Purchasing Managers Index fell to 48.7 in October, dropping from September’s 49.1 and indicating persistent contraction in manufacturing activity. This marks the eighth consecutive month of decline, with demand indicators showing improvement but still remaining in contraction territory.
Pound Sterling Cautious Ahead of BoE
Pound Sterling remains cautious ahead of the BoE’s policy announcement, reflecting market speculation about a potential monetary easing move. The BoE previously noted inflation was expected to peak around 4% in September, underscoring ongoing economic evaluations.
Traders view GBP/USD’s response as linked to broader market assessments and economic data. As markets digest these developments, any shifts in policy or economic forecasts will likely shape future currency movements.
Given the churn around the 1.3150 level for GBP/USD, we see rising uncertainty ahead of the Bank of England’s decision this Thursday. Implied volatility on one-week pound options has ticked up to its highest level in three months, reflecting the market’s division on a potential rate cut. This makes buying volatility an interesting proposition for derivative traders.
Market Pricing and Strategy
The market, specifically Sterling Overnight Index Average (SONIA) futures, is pricing in roughly an 8-basis-point cut, aligning with the one-in-three chance of a full 25-basis-point move. We remember the sharp 150-pip rally in GBP/USD after the BoE’s unexpected hawkish hold back in May of 2025, when similar dovish odds were priced in. A similar outcome this week could see the pound surge as those bearish bets are unwound.
Considering the binary nature of the event, a long straddle using options expiring at the end of the week could be an effective strategy. This position would profit from a large move in either direction, whether the BoE cuts rates and sends the pound tumbling or holds steady and triggers a relief rally. The weak US ISM manufacturing data, which came in at 48.7 for October, provides a soft floor for the currency pair and may limit downside even if the BoE is dovish.
Therefore, traders could also consider selling out-of-the-money put options on GBP/USD with a strike below the 1.3000 psychological level. This strategy collects premium while betting that the combination of a potential BoE hold and ongoing US economic weakness will prevent a catastrophic slide in the pound. This is a higher-risk strategy but offers a way to profit if the pair remains in its current range or moves higher.
