The Pound Sterling has gained strength during the North American trading session on Wednesday. The GBP/USD pair rose to 1.3336, bouncing back from a low of 1.3296 as the U.S. dollar weakened amid expectations of a rate cut by the Federal Reserve. In European trading, the GBP increased by 0.16% against the USD, hovering around 1.3320. This rise in the GBP/USD pair is linked to the upcoming announcement on the Federal Reserve’s monetary policy, which is expected to include an interest rate cut. During the early European session, the pair traded positively around 1.3305. This momentum is supported by the U.S. dollar’s decline against the Pound, fueled by looming expectations of a Fed rate cut. Meanwhile, the UK’s GDP report is set to be released on Friday. In related news, gold prices increased after the Fed’s monetary policy announcement. Currently trading around $4,230, gold’s demand is somewhat limited due to a positive market sentiment but still benefits from a weaker U.S. dollar. The Federal Open Market Committee’s (FOMC) forecasts suggest an average interest rate of 3.4% by the end of 2026, alongside an increase in GDP forecasts. The Fed’s decision to cut interest rates has weakened the U.S. dollar, giving a boost to the Pound Sterling, which is now trading firmly above 1.3300. This rate cut was largely expected, especially after last week’s Non-Farm Payroll report indicated job growth slowed to a six-month low of 155,000. The market’s immediate response suggests that in the coming weeks, strategies benefiting from ongoing, albeit slower, dollar weakness may be favorable. We now focus on the Bank of England and forthcoming UK data, especially Friday’s GDP report. Recent surveys from the Confederation of British Industry indicated a slight decrease in manufacturing orders, suggesting possible economic weakness. With UK inflation easing to 2.8% in November, the Bank of England might maintain a dovish stance, which could limit the Pound’s rally. Given this situation, we see potential in using options to express a cautiously optimistic view on the Pound while hedging against a disappointing GDP figure. Buying GBP/USD call spreads with a strike price near 1.3450 lets traders capitalize on further gains while keeping initial costs and risks in check. The implied volatility for one-month GBP/USD options, which had risen before the announcement, has now settled back to around 9%, making option premiums more appealing. The weakness of the dollar is a widespread trend, pushing the EUR/USD pair closer to the 1.1700 mark—a significant level not maintained since the first half of 2024. This situation is similar to late 2023 when markets began to anticipate the end of the Fed’s aggressive rate hikes. Therefore, we think derivative strategies that bet against the dollar versus other major currencies should remain a key focus. Gold has also responded positively to the combination of lower interest rates and a weaker dollar, breaking above $4,230 an ounce. The metal has seen a strong trend, gaining more than 15% since the Fed’s dovish stance became clear in September 2025. We believe that purchasing out-of-the-money call options on gold futures is a good approach to maintain exposure to this upward momentum.

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