In an article from The Times, Swati Dhingra of the Bank of England mentioned that the factors causing high inflation in the UK are only temporary. She emphasized that the UK’s food inflation is not worse than in other countries, and that wages impact the Consumer Price Index for services less significantly. The FXStreet BoE Speech Tracker rated her comments with a dovish score of 2.0. Meanwhile, GBP/USD remained steady, trading around 1.3400 during the US session.

The Role Of The Bank Of England

The main goal of the Bank of England is to keep prices stable, aiming for a 2% inflation rate. They change base lending rates to influence the economy, which affects the value of the Pound Sterling. When inflation rises above the target, raising interest rates attracts global investments and strengthens the Pound. On the contrary, lowering rates during low inflation aims to boost economic growth, which usually weakens the Pound. Quantitative Easing (QE) is when the BoE purchases assets to increase credit flow, typically lowering the Pound’s value. Conversely, Quantitative Tightening (QT) strengthens the economy by reversing QE, thereby boosting the Pound. Before making any investment decisions, it’s crucial to do thorough research. The opinions in this article reflect the authors and are not investment advice.

Fading Inflation Shocks

A key policymaker at the Bank of England suggests that the major inflation shocks are diminishing. This indicates that we shouldn’t be too hesitant about reducing interest rates. This view is gaining traction, especially since the latest data shows a decrease in the headline inflation rate to 2.4% for August 2025, down significantly from its peak in 2023. However, with UK GDP growth at a weak 0.1% last quarter, the focus is now on avoiding a hard landing. This developing dovish sentiment presents an opportunity to prepare for potential Sterling weakness against the US dollar in the near future. The US economy appears stronger, with inflation around 2.9%, making it less likely for the Federal Reserve to cut rates quickly. This difference in policies is a classic driver for currency pairs, so we should be ready for GBP/USD to potentially fall below its current support at 1.3400. In light of this outlook, we might consider buying GBP/USD put options that expire in the coming weeks, like late October or early November 2025. This strategy would allow us to profit from a possible decline if the market starts to anticipate a more aggressive rate cut. Since implied volatility has been increasing, using put spreads could be a budget-friendly way to express this bearish belief without spending too much in premiums. Looking back, this scenario is similar to market sentiment in late 2023, when traders anticipated a shift from the central bank. While the pound remains stable for now, currencies can change quickly when consensus shifts. We will closely monitor the upcoming wage growth and retail sales figures, as any sign of weakness could strengthen the case for an earlier rate cut. Create your live VT Markets account and start trading now.

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