The UK has hit a pause in its effort to reduce inflation, and there are signs that inflation might rise slightly before it peaks. Dave Ramsden, the Bank of England’s deputy governor, pointed out that food prices are influencing household inflation expectations. The job market shows signs of loosening, with wage growth returning to normal levels. Ramsden believes that this loosening will help stabilize the inflation outlook, even though some structural issues may still exist.

Household Inflation Expectations

Since 2022, household inflation expectations have become more sensitive to food prices. Despite some worries, Ramsden is optimistic that inflation will return to target levels thanks to current high rates and market expectations. However, there are cautionary notes about the risks and uncertainties of forward-looking statements. The markets and instruments discussed are for informational purposes only and should not be considered as buying or selling advice. Readers are encouraged to do their research before making any investment decisions, as there is a risk of significant losses. FXStreet cannot guarantee the accuracy of the information provided and is not responsible for any errors or losses. The information shared does not constitute investment advice, and FXStreet is not a registered investment advisor. UK inflation progress has slowed, and a slight increase may happen before it peaks. Recent data from the Office for National Statistics shows that the Consumer Price Index inflation rose to 2.3% in August 2025, after briefly hitting the 2% target earlier in the summer. This short-term trend could delay the Bank of England’s first rate cut, introducing uncertainty for short-dated SONIA futures. The Bank of England is focused on the cooling job market, which is expected to stabilize inflation in the medium term. Recent data indicates that UK unemployment has risen to 4.5%, and wage growth has slowed to its lowest rate in two years. Traders should view any short-term inflation increases as temporary and look for chances to prepare for possible rate cuts in 2026.

US Dollar Weakness

Currently, US Dollar weakness is driving the markets. Concerns about a potential US government shutdown and a dovish Federal Reserve stance are contributing to this trend. This has pushed currency pairs like GBP/USD toward the 1.3450 level, a notable rise from below 1.30 earlier this year. Traders might consider buying call options on GBP/USD to take advantage of this momentum, as dollar weakness is the prevailing theme. This softness in the dollar, combined with expectations of upcoming Fed rate cuts, is pushing gold prices toward new highs. Current Fed funds futures indicate a high chance of a rate cut before the end of 2025, making holding dollars less attractive. Therefore, using options to gain long exposure to gold, aiming for prices above $3,850 per ounce, could be a smart way to protect against dollar decline. For the pound, the situation is a balance between the weakness of the US dollar and the Bank of England’s plan to cut rates eventually. While the dollar’s challenges dominate the headlines, we should remember the volatility of 2022, which showed how quickly sentiment on the pound can change. This environment suggests using strategies like straddles on GBP/USD, which can benefit from significant price shifts in either direction. Create your live VT Markets account and start trading now.

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