The Pound Sterling has shown mixed results, generally struggling against major G10 currencies. The EUR/GBP saw a significant increase in one day, leading traders to predict an early rate cut by the Bank of England (BoE). According to MUFG’s FX analyst Derek Halpenny, the chance of a rate cut by the end of the year has jumped from 20% to 40% recently.

Monetary Policy Expectations

Market trends indicate that attitudes may change due to upcoming job and CPI reports slated for release between the November and December Monetary Policy Committee (MPC) meetings. The UK Budget on November 26 might reveal a fiscal drag as the government looks to close a £30 billion fiscal gap. MPC member Alan Taylor supports the idea of potential rate cuts, highlighting the impact of changing trade patterns on UK prices. For instance, Chinese exports to the UK increased by 12.2% year-on-year in September, while exports to the US dropped by 27%. If inflation decreases soon and wage growth remains stagnant, the case for a December rate cut could become stronger. The EUR/GBP is likely to edge higher as the year ends, buoyed by market expectations of a possible BoE rate cut. The pound has been lagging behind, and we are seeing a clear change in market sentiment. The likelihood of a Bank of England rate cut by the end of the year has doubled to 40% in just a few days. This increase follows recent job data indicating a cooling labor market; the report on October 14 revealed that wage growth slowed to 5.5%, marking its third straight monthly decline. Traders should pay close attention to developments between the November and December policy meetings. With two inflation and two jobs reports scheduled during this time, we anticipate significant price fluctuations, making it a prime opportunity for volatility strategies using options. Any data suggesting further economic weakness will likely push rates for a December cut, influencing the pound’s movement.

Inflation and Economic Outlook

The case for easing is strengthened by the most recent inflation data. The Office for National Statistics stated that the headline CPI for September 2025 decreased to 2.1%, bringing it close to the BoE’s 2% target and supporting arguments from more dovish committee members. This decline in inflation, along with expected fiscal tightening from the budget on November 26, adds pressure on the BoE to lower rates to bolster the economy. Given this outlook, a negative view on the Pound seems sensible, particularly against the Euro, where a rate cut is not expected soon. We saw a similar scenario in late 2019, when a weakening labor market prompted the BoE to hint at future cuts, causing the pound to underperform. This suggests that preparing for a higher EUR/GBP exchange rate could be a smart move in the coming weeks. Create your live VT Markets account and start trading now.

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