The Bank of England has cut interest rates by 25 basis points in a close 5–4 vote. This indicates a careful approach toward making further rate cuts. The pound might gain value because the Bank of England is not rushing to ease policy further. The four policymakers who opposed the cut show that there are different opinions within the committee.

Sterling’s Outlook

TD Securities believes this cautious stance could improve the outlook for the pound for the rest of the year. Expectations that the U.S. dollar will weaken also support this view. It’s expected that the Federal Reserve may lower rates two to three times by the end of the year. This would decrease the interest rate gap, creating upward pressure on the GBP/USD exchange rate. The Bank of England’s split 5-4 vote to lower rates on August 7, 2025, suggests that there’s limited room for additional cuts. This indecision supports the pound. We describe this as a “hawkish cut”—the action is dovish, but the outlook shows a reluctance to cut rates again soon. This cautious approach makes sense in light of recent data. The UK’s inflation rate for July 2025 was reported at 2.5%, still above the Bank’s 2% target. This is why four committee members chose to keep rates steady, as their priority is to fully control inflation.

US Dollar Outlook

At the same time, the outlook for the U.S. dollar looks weaker, which should help the pound strengthen. U.S. inflation is slowing down, and a recent jobs report indicated a slight softening in the labor market. This gives the Federal Reserve more flexibility to cut rates several times this year. For those trading derivatives, this difference in outlook suggests buying call options on GBP/USD. We recommend looking at strikes around the 1.3300 level with expirations late in the fourth quarter. This strategy offers a way to capture potential gains in the currency pair while managing risk. The close vote may also keep implied volatility high in the coming weeks. This makes buying options appealing, as it allows traders to benefit from a possible sharp increase should the market anticipate fewer BOE cuts. The uncertainty over future decisions means a quick rally is more likely than a slow rise. We have seen similar situations before, like in late 2021 when the Bank of England changed rates before the Federal Reserve, causing significant movements in the pound. The current scenario with a hesitant BOE and a more proactive Fed is reminiscent of that time. Thus, betting on a stronger pound through derivatives appears to be a sensible response to today’s developments. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now