The British Pound rose initially after the Bank of England (BoE) cut the interest rate by 25 basis points to 3.75%. However, these gains later eased as the markets processed a more cautious outlook than expected. Governor Bailey indicated that any further rate cuts would happen slowly and depend on economic data. As a result, traders slightly lowered their expectations for future rate cuts.

Market Expectations Adjusted

Market predictions for rate cuts by 2026 have been changed to about 39 basis points. Governor Bailey mentioned there isn’t much room for easing policies, and it’s hard to predict the exact future rate cuts. While there is potential for more easing, the exact amount remains unclear. After the BoE’s decision, the GBP initially climbed but later lost some ground. Analysts pointed out the possibility of a rising wedge pattern, which could suggest bearish reversals. Key support levels for the Pound are at 1.3350, 1.3290, and 1.3255, while resistance is noted at 1.3460 and 1.35. Despite positive momentum on the daily chart, risks of price declines exist due to a weakening RSI and the rising wedge pattern. The BoE’s rate cut was anticipated, but their message indicates they are not in a hurry to make more cuts. Governor Bailey’s comments made it necessary to lower expectations for rate cuts in 2026 to only 39 basis points. This cautious approach is a key factor for the GBP right now, limiting its downside in the short term. This caution from the central bank is understandable given recent data. Last week, a report showed that November’s inflation (CPI) stayed at 3.1%, well above the 2% target. With this in mind, the BoE’s data-driven approach means we need to closely monitor upcoming inflation and employment data in January before planning for the next significant move.

Technical Patterns Indicate Downside Risks

From a technical perspective, a bearish rising wedge pattern is developing on the daily chart for GBP/USD, signaling increasing downside risks. It may be wise to consider buying put options as a hedge against a potential drop towards key support levels at 1.3350 and then 1.3290. If prices break below these levels, it could indicate the start of a larger downward trend. Given the uncertainty and the BoE’s focus on a “gradual” approach, implied volatility in the options market may become appealing. With thinner liquidity expected during the holidays, price movements could be volatile. This scenario could favor strategies like short-dated straddles, which would benefit from significant price shifts in either direction. Looking back, we saw a similar situation during 2017-2018, where cautious guidance from the central bank led to months of range-bound trading. Therefore, we should prepare for the pound to trade sideways until a clearer trend emerges in the new year. The upcoming December jobs report and the first estimate of Q4 GDP in mid-January 2026 are likely to be the next significant triggers. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now