S&P Global PMI Data The GBP is struggling to gain strength, even though the UK has some positive economic indicators. There are ongoing expectations of a potential rate cut from the Bank of England, with the swaps market showing a 25% chance of this happening in November. In contrast, US inflation data was weaker, with the Consumer Price Index (CPI) increasing by 0.3% in September. This supports the idea of rate cuts by the Federal Reserve. The US S&P Global PMI data indicates strong private sector performance, with a Composite PMI reading of 54.8, which is helping the USD recover. The GBP/USD exchange rate has changed little, while the British Pound is performing well against the Canadian Dollar. The UK economy is showing unexpected strength, as both retail sales and business activities have exceeded forecasts. This creates a challenging situation since the Bank of England is still expected to lower interest rates. The conflict between strong economic data and rate cut expectations is keeping GBP/USD around the 1.3325 mark. Market Expectations The market is anticipating the Bank of England will cut rates by 50 basis points over the next year, but caution is advisable. UK inflation has been stubborn throughout 2024, and the Bank might be slow to cut rates even after the recent drop to 3%. Traders might consider options that benefit if the Bank of England decides to keep rates steady at its November meeting, which would go against current market assumptions. On the other side, softer US inflation data supports the likelihood of Federal Reserve rate cuts, a trend that began in late 2023 as the Fed signaled a shift in policy. However, strong business activity in the US, with the Composite PMI at 54.8, continues to support the US Dollar for the time being. This stalemate between the two economies keeps the currency pair within a tight range. Given the mixed data from both economies, GBP/USD is likely to stay within a specific range in the short term. One-month implied volatility for the pair has recently declined to 6.8%, which is lower than what we observed during much of 2024. This presents a good opportunity to buy long-term options, such as straddles, for a potential breakout. Key events to watch include the upcoming central bank meetings in early November. Any surprises from either the Bank of England or the Federal Reserve could easily shift the current situation. Therefore, we recommend focusing on the anticipated volatility itself rather than trying to predict a specific movement for the pound. Create your live VT Markets account and start trading now.

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