Pound Sterling is holding steady, showing some strength while other currencies are affected by trade uncertainty. The key focus in the UK is the upcoming policy decision from the Bank of England, where many expect a quarter-point rate cut to 4.00%. Sterling has gained ground since a turnaround on Friday around 1.3348 against the USD, possibly signaling the end of its July decline. Support levels are found at 1.3250/55, with possibilities for the pound to move above 1.3355/65 and into the low 1.34 range.

Disclaimer

This information is meant for guidance only and should not be taken as financial advice. Always do thorough research before any investment, knowing the associated risks, including the possibility of losing your entire investment. We cannot guarantee that this material is error-free or up-to-date. All investments carry significant risks, and any decisions you make are your responsibility. We do not provide official investment guidance. As we near the Bank of England’s policy announcement, the market widely anticipates a quarter-point rate cut to 4.00%. This expectation follows last month’s report showing UK inflation dropped to 4.3% in June, continuing its decline from 2023 highs. The reduction is also seen as a response to slowing economic activity, evidenced by Q2 2025 GDP shrinking by 0.1%.

Rate Cut Expectations

With a rate cut mostly priced in, traders face the immediate risk of an unexpected decision or a hawkish message from the Bank of England. Implied volatility on Sterling options is rising before the announcement, creating a potential opportunity. If the Bank decides to maintain rates at 4.25%, the Pound could surge sharply, possibly breaking important resistance levels. Given the recent strength of the Pound against the dollar, we are keeping a close eye on the 1.3355/65 range. For those confident that the rate cut is already factored in and expect Sterling to rise, buying near-term call options with a strike price around 1.3400 could be a smart move. This allows you to profit from a possible move towards the low 1.34 range while managing your risk. On the other hand, we must also prepare for a possible drop if the Bank’s future outlook is more negative than anticipated. The sharp market changes seen in late 2022 remind us how quickly markets can react to central bank statements. Traders with long positions might consider purchasing put options with a strike near the 1.3250 support level to protect against a potential downturn. Create your live VT Markets account and start trading now.

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