Insights 
VT 
GBP/USD continues to trade around 1.3150 as UK Chancellor Rachel Reeves scraps planned income-tax increases. This decision leads to concerns about the UK’s fiscal future, although the budget deficit forecast has been reduced to £20 billion. Reeves plans to focus on threshold adjustments and salary-sacrifice reforms rather than major tax hikes.
The British Pound faces ongoing pressure due to weaker economic data, raising expectations of a Bank of England rate cut in December. The UK’s economy only showed marginal growth in the third quarter, with a monthly GDP decline in September. Key indicators such as inflation figures and flash PMIs for the manufacturing and services sectors are anticipated this week.
US Dollar Outlook
Meanwhile, the US Dollar remains stable, with traders preparing for delayed US data following the government’s reopening. The probability of a Federal Reserve rate cut in December has decreased from 62% to 43%. Governor Christopher Waller expressed concern over the labour market and a hiring slowdown, suggesting the Fed consider a rate cut.
The Pound Sterling is the world’s oldest currency, accounting for 12% of global foreign exchange transactions. Economic data and the Bank of England’s monetary policy are critical in influencing its value, with interest rates being a primary tool for maintaining price stability.
The British Pound is struggling as we see growing divergence between UK fiscal and monetary policy. Chancellor Reeves’s decision to scrap planned tax hikes raises questions about the government’s future budget plans, putting pressure on the currency. This fiscal uncertainty, combined with soft economic data, is strengthening our view that the Bank of England will cut interest rates in December.
UK Inflation and Market Expectations
Last week’s UK inflation data for October 2025 showed a continued cooling trend, with the headline CPI rate falling to 2.1%, just above the Bank’s target. This has cemented market expectations for a rate cut, with derivatives markets now pricing in an 85% probability of a 25-basis point reduction at the December meeting. These factors create a strong bearish case for the Pound Sterling in the weeks ahead.
On the other side of the pair, the US Dollar situation is less clear, which suggests potential for volatility. While the market has reduced the odds of a December Fed rate cut, Governor Waller’s recent call for one introduces a significant conflict. We feel that buying GBP/USD put options is a sensible strategy, as it allows traders to profit from a potential decline in the pair while capping risk ahead of the delayed US data releases.
We remember the market turmoil in late 2022 when unfunded fiscal plans caused a sharp sell-off in the Pound. While the current situation is far less extreme, that period showed how sensitive investors are to UK fiscal credibility. This memory is likely contributing to the Pound’s current weakness and supports a cautious, bearish stance.
