The Bank of England kept interest rates at 4.0% this month, signaling a careful approach. A close 5–4 vote among the Monetary Policy Committee and comments from Governor Andrew Bailey hint at a possible rate cut in December, despite positive inflation data from September. After the BOE’s decision, the GBP/USD pair rose above 1.31 but didn’t climb much higher due to hints of a potential rate cut. This bounce lasted for two days before hitting resistance at 1.3118, staying below significant resistance levels at 1.3170/86.

Preparing for a Rate Cut

The Bank of England seems to be preparing for a rate cut in December, even though it kept rates steady at 4.0% this month. The tight 5-4 vote indicates a potential policy change soon. This makes the upcoming inflation reports for October and November very important. Recent data from the Office for National Statistics (ONS) shows that the UK economy stalled in the third quarter of 2025, achieving 0.0% growth. While inflation eased in September, the October figures remained unyielding at 3.1%, staying far from the 2% target. This mix of stagnant growth and persistent inflation strengthens the case for a rate cut to boost the economy. On the other hand, the US dollar is staying strong. The Federal Reserve seems to be taking a wait-and-see approach, especially after October’s non-farm payrolls exceeded expectations with 190,000 jobs added. This difference, with the Bank of England adopting a softer stance while the Fed remains firm, may limit significant increases in GBP/USD.

Advice for Traders

For derivative traders, this suggests preparing for a weaker pound or increased volatility as December approaches. Buying GBP/USD put options that expire in January 2026 could be a direct way to bet on a rate cut. Alternatively, considering the uncertainty around the upcoming budget on November 26 and inflation data, a long straddle might help capture a sharp move in either direction. We’ve seen a major policy shift from peak rates above 5% in 2023 to this potential cut. The market has already tested the important 1.3000 level, and if resistance around 1.3170 isn’t broken, we may quickly revisit that support. The recent bounce appears weak, reacting more to the “no change” news rather than indicating a shift in sentiment. Create your live VT Markets account and start trading now.

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