GBP/USD rose slightly to 1.3319 after US inflation data came in lower than expected. The US Consumer Price Index (CPI), both overall and core, reported a 3% increase year-on-year, just below the 3.1% forecast. This has led to heightened expectations for a possible rate cut by the Federal Reserve. In the UK, inflation also decelerated, raising the likelihood of a Bank of England rate cut in December to 67%. The GBP/USD pair has shown a small recovery from last Friday’s losses. Support for the British Pound is fueled by positive investor sentiment ahead of the upcoming Trump-Xi meeting.

Technical Outlook

The technical outlook for GBP/USD indicates a downward trend, with key resistance levels ahead. In the short term, it could target 1.3400. However, if the pair dips below 1.3300, the 200-day Simple Moving Average (SMA) at 1.3226 will serve as the next support level. In currency performance, the British Pound appreciated by 2.63% against the Japanese Yen over the last month. The currency heat map shows the British Pound is notably strong against the Yen. Ongoing evaluations of fiscal events and economic policies are causing currency values to fluctuate. The softer US CPI reading of 3.0% is the main focus and puts pressure on the Federal Reserve. Current market pricing reflects on the CME’s FedWatch tool and shows an over 85% chance of a 25-basis-point cut at the next meeting. This expectation is negatively impacting the US dollar against most major currencies.

Potential Economic Shifts

However, any weakness in the dollar may be countered by developments in the UK. Recent UK inflation was reported at 3.5%, down from 4% earlier this year, yet still above the Bank of England’s target. The increased likelihood of a December rate cut at 67% could limit any significant gains for Sterling, creating a competitive policy environment. The upcoming Trump-Xi meeting adds significant event risk, suggesting that traders might consider options to manage the expected volatility. The market saw sharp movements during the 2018-2019 trade disputes, where headlines could shift currency pairs by over a percentage point in one session. A long straddle—buying both a call and a put option on GBP/USD—could be a smart strategy to prepare for substantial price moves, regardless of the meeting’s outcome. Looking ahead to November, the UK’s Autumn Budget on the 26th will be another key event. The market has already factored in considerable tax increases from Chancellor Reeves, so any surprises could present a real trading opportunity. It may be wise to consider options with early December expirations to capture any volatility that arises from a fiscal plan that is more or less aggressive than expected. From a technical viewpoint, the critical levels of 1.3400 and 1.3300 are ideal for setting up options. A bearish trader could consider buying puts with a 1.3300 strike, targeting a move toward the 200-day SMA at 1.3226. This strategy would allow for potential profits from a breakdown while managing risk before central bank announcements. Create your live VT Markets account and start trading now.

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