Insights 
VT 
Despite Positive UK Economic Forecasts
The key support for GBP/USD stands at 1.3200, with further support at the 20-day SMA of 1.3153. British Pound showed varied performance against major currencies, remaining weaker against the Swiss Franc but stronger against others. The heat map reveals mixed strength of currencies in comparison to each other.
We are seeing a rare setup where both the Federal Reserve and the Bank of England are expected to cut rates this month. With markets pricing in an 87% chance of a Fed cut and a 90% chance for the BoE, the main question is which central bank will signal a more aggressive easing path. This uncertainty ahead of the December meetings is a prime environment for volatility.
The Recent US ISM Manufacturing Print
The recent US ISM Manufacturing print of 48.2 confirms a ninth month of contraction, a pattern we have not seen since the slowdown of 2019 that preceded a series of Fed cuts. This weak industrial data, combined with the latest Core PCE inflation figure from last week which came in at 2.8%, reinforces the case for the Fed to act. Derivatives pricing on Fed Funds futures now implies a potential for another 50 basis points of cuts through the first half of 2026.
In the UK, the political noise following the OBR chief’s resignation is adding to the pressure on the Bank of England. Although November’s house price data showed a surprising uptick, last month’s retail sales figures showed a 0.5% decline, indicating weak consumer demand. This is why markets are pricing a 90% chance of a cut, making long positions in GBP vulnerable to any dovish surprises from the BoE.
Given the high event risk, we should look at options to manage positions or speculate on a breakout in GBP/USD. Implied volatility for December expiries is elevated, suggesting a straddle or strangle strategy could be effective to play a large move in either direction post-announcements. Key strike prices to watch are around the 1.3300 resistance and the 1.3150 support levels.
The unwinding of the dollar carry trade, which was popular through much of 2024, is accelerating as Fed cut expectations solidify. However, with the BoE also poised to cut, the interest rate differential may not shift dramatically in favor of sterling just yet. Traders should monitor the forward rate agreements for both currencies to gauge which is being priced more dovishly for the months ahead.
