GBP/USD rose as the British Pound gained strength ahead of the Bank of England’s rate decision. The Bank of England (BoE) is expected to keep the policy rate at 4% in November. Meanwhile, the US Dollar may recover due to positive economic data, which lowers the chances of a Federal Reserve rate cut in December.

Chancellor Rachel Reeves’ Announcements

Traders are waiting for Chancellor Rachel Reeves’ announcement about stricter fiscal policies in the budget on November 26 to tackle borrowing issues. In her speech, she mentioned potential tax increases and emphasized the importance of managing debt. Market feelings improved as the US Dollar weakened, which lowered expectations for a Fed rate cut in December. The CME FedWatch Tool now shows a 62% chance of a cut, down from 68% the previous day. Recent US data revealed that ADP Employment Change rose by 42,000 in October, a rise from a revised September drop of 29,000. This exceeded the 25,000 forecast. Moreover, the US ISM Services PMI went up to 52.4 in October from 50.0 the month before, beating expectations of 50.8. The BoE’s interest rate decisions can impact the strength of the Pound Sterling. Generally, higher rates are seen as favorable for GBP. The next BoE decision is on November 6, 2025, with rates likely to stay at 4%.

Bank of England’s Upcoming Rate Decision

As the Bank of England makes its rate decision today, the key focus will be on how the policy statement is communicated. A hold at 4% is widely expected, but any change in tone about future rate cuts could lead to market volatility. This creates a chance for trading short-term options since implied volatility for the pound has risen to over 11% for one-week contracts. Looking ahead, the economic scenarios for the UK and the US appear to be diverging. The UK’s recent inflation report showed the Consumer Price Index (CPI) easing to 3.5%, giving the BoE reason to think about cuts in early 2026. In contrast, the latest US Non-Farm Payrolls report revealed an increase of 250,000 jobs, supporting the view that the Federal Reserve can be patient. This divergence could lead to a downturn for GBP/USD in the coming weeks. A potential strategy might be to buy GBP/USD put options that expire in December or January. This will allow participation in a possible decline while capping the maximum risk in the trade. The UK budget announcement on November 26 is another important event that may pressure the pound. Suggestions of fiscal tightening, such as tax hikes, could hurt economic growth and add to bearish sentiments for the currency. This fiscal strain might make any pound rebounds brief. We remember how much market volatility occurred after fiscal plans were revealed in late 2022, leading to a sharp decline of the pound against the dollar. While the current conditions are different, they illustrate how sensitive the currency can be to fiscal announcements. Thus, holding positions through the budget announcement involves substantial risk. Create your live VT Markets account and start trading now.

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