Insights 
VT 
The GBP/USD pair has shown an upward trend, reaching approximately 1.3365 as the expectation for a Federal Reserve interest rate cut grows. The US Dollar is under pressure following softer-than-anticipated US CPI data, reinforcing the belief that a rate cut is imminent.
On Monday, GBP/USD experienced a bounce from the 1.3300 mark, ending a six-day losing streak as attention turns towards an upcoming Fed rate decision. A second consecutive rate cut is generally expected, with markets keenly observing the Fed’s stance regarding a potential third cut in December.
Impact Of US China Trade Talks
Currently, GBP/USD trades around 1.3319, showing a slight increase of 0.07%, aided by optimism for a de-escalation in the US-China trade war. Meanwhile, a drop in UK inflation has led to speculation on a possible rate cut by the Bank of England in December. US and Chinese leaders are set to meet, potentially impacting currency dynamics further.
The market’s focus is squarely on the Federal Reserve’s decision tomorrow, with a quarter-point rate cut now largely priced in. This expectation is fueling the US Dollar’s recent weakness, pushing GBP/USD towards the 1.3365 level. This move snaps a six-day losing streak, suggesting a short-term shift in sentiment.
We see this as a continuation of the policy pivot that began earlier this year, following the aggressive rate hikes of 2023 and 2024 used to tame inflation. The latest US Consumer Price Index data showing inflation at 3.0% YoY, a significant drop from the 4.0% average we saw in late 2024, gives the Fed cover to continue easing. This reinforces the view that the dollar’s multi-year bull run is losing steam.
Trading Strategies For Forthcoming Announcements
For derivatives traders, implied volatility on GBP/USD options is likely to be elevated heading into the announcement. A key consideration will be the Fed’s forward guidance on a potential third cut in December, which could spark a significant move. This suggests that strategies like long straddles could be useful for those betting on a post-announcement breakout, regardless of the direction.
On the other side of the pair, we’re also watching the Bank of England, as bets for a December rate cut there are also increasing. UK inflation has eased to 2.8% from the stickier levels seen at the start of the year, but the BoE may be more cautious than the Fed. This potential policy divergence will be crucial for the pound’s direction beyond this week.
Optimism over a potential US-China trade de-escalation, with a meeting expected later this week, is also providing a tailwind for risk-on currencies like Sterling. This positive sentiment has helped the pair recover from the sub-1.28 levels we saw for much of 2024. Traders who are bullish on both a dovish Fed and a positive trade outcome could consider buying short-dated call options on GBP/USD to capture potential upside.
