The Bank of England decided to keep interest rates steady at 4%, following predictions. The decision was close, passing with a 5-4 vote. Alan Taylor, Swathi Dhingra, and others suggested a 0.25% cut.

Gold Price Movement

Gold prices fell below $4,000 per troy ounce after the announcement. A weaker US Dollar and a decrease in US Treasury yields helped its slight recovery. The GBP/USD exchange rate dropped to around 1.3080 due to the dollar’s strength, but the Pound is still recovering as the market considers the Bank of England’s position and Governor Bailey’s comments. The EUR/USD pair retracted to about 1.1520 but remained stable due to the weaker US Dollar. This performance reflects recent hawkish remarks from Federal Reserve officials, which supported the dollar. Gold continues to face pressure as it stays below $4,000. Investors are watching speeches from Federal Reserve officials closely. This interest rate decision comes as central banks globally discuss economic challenges. The future of currencies and commodities will depend on upcoming economic data and central bank updates, likely influencing currency values and investor sentiment. The Bank of England’s close 5-4 vote to keep rates at 4% indicates that a rate cut may happen soon, especially as more members voice their dissent. With recent UK inflation data showing a drop to 2.8% for October 2025 and a sluggish GDP growth of just 0.1% in the third quarter, the case for easing is growing. We believe it makes sense to consider strategies like buying puts on GBP/USD, betting on a weaker pound in the coming weeks. Gold’s drop below the crucial $4,000 mark should be seen as a short-term reaction, likely from profit-taking rather than a shift in the overall trend. We recall a similar period of uncertainty about the Fed’s stance late in 2023, which led to a strong rally once clarity was achieved. For now, selling out-of-the-money call options with a strike price above $4,100 could be a smart way to earn income while we wait for this consolidation phase to end.

Interest Rate Markets

The key takeaway for us relates to interest rate markets, where the close vote has cleared up much uncertainty about the Bank of England’s future plans. Futures markets are already pricing in an 85% chance of a 0.25% rate cut by the Bank’s January 2026 meeting. This suggests that positioning for lower UK rates by going long on short-term interest rate futures holds strong momentum. At the same time, strength in currency pairs like EUR/USD is directly linked to a slowing US economy, which keeps the dollar weak. Recent data showed US core inflation easing to 2.5% and the last non-farm payrolls report was below expectations at 145,000, limiting the Federal Reserve’s ability to pursue aggressive policies. This divergence supports strategies like buying call options on EUR/USD, aiming for further gains toward the 1.1600 mark. Create your live VT Markets account and start trading now.

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