The Pound Sterling saw a slight increase thanks to the recent UK budget, which eased some fiscal pressures. However, its potential for further growth may be limited due to postponed tax measures and expected cuts in Bank of England (BoE) rates. The UK budget report showed a mix of tax increases and lower growth forecasts, which reassured the markets. Nonetheless, ongoing uncertainty about long-term spending plans remains a concern for the economy.

Global Economic Shifts

At the same time, global economic changes are attracting attention, especially the expected Fed rate cuts that could influence commodities and currencies. Legal and advisory notes remind investors of the risks involved in financial markets, emphasizing that individuals are responsible for their investment choices. The recent UK budget has provided some relief, leading to a small rise in the Pound Sterling and easing pressures on gilt markets. However, we see this as a short-term improvement, as the issues of persistent inflation and slow growth are still present. The market is now focusing on the challenging economic balancing act the country faces. We are dealing with high inflation, with October 2025 CPI data showing a rate of 3.4%, and sluggish economic growth, which has been adjusted down to just 0.6% for the year. This situation makes it hard for the Bank of England to take strong action without affecting one aspect of its responsibilities. Given this economic context, any significant improvement in the Pound’s value may be difficult to maintain.

Market Expectations for BoE Rate Cuts

The market now anticipates that the Bank of England will start cutting rates in early 2026, especially after rates remained at 4.75% this month. This expectation sets a limit for the GBP, particularly against the US Dollar, as the Federal Reserve seems to be more cautious. We recall how the aggressive rate hikes of 2022-2023 shifted currency valuations, and we expect the focus on rate differences to persist. For those involved in trading derivatives, this outlook suggests that selling volatility on the Pound could be a wise strategy in the coming weeks. With limited upside for GBP, writing out-of-the-money call options on pairs like GBP/USD might allow traders to earn premium from the market’s restrained expectations. We believe strategies that benefit from the Pound staying within a specific range will be more successful than betting on a major breakout. Create your live VT Markets account and start trading now.

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