The Pound Sterling has dropped to its lowest level in nearly three months against the US Dollar, hitting around 1.3200 during the European trading hours. This decline comes as the US Dollar Index has increased by 0.2% to nearly 99.00, as expectations rise for the Federal Reserve’s announcement on monetary policy. The GBP/USD pair has decreased for the ninth time in the last ten days. Worries about the UK’s financial situation are growing. The Office for Budget Responsibility is likely to lower productivity forecasts by 0.3%, which could expand the fiscal gap by £20 billion.

Interest Rate Expectations

Traders now see a 68% chance that the Bank of England will cut interest rates by 25 basis points in December. This expectation stems from weak inflation figures and ongoing financial pressure, following a report from the British Retail Consortium that showed a 0.4% drop in food prices from last month, the largest decline since December 2020. These economic factors are coming into play just ahead of the Finance Minister’s Autumn budget on November 26, which is shaping market views. Both external economic situations and domestic fiscal policies are significantly impacting the currency’s performance. The US central bank is expected to lower rates for the second time, which will also affect currency exchange rates. With the Pound hitting a three-month low against the Dollar at around 1.3200, the central bank divergence is defining the immediate future. The US Dollar is gaining strength ahead of the Federal Reserve’s announcement today, while the Pound struggles due to local challenges. This scenario suggests we might see increased volatility soon. We should brace for further weakness in the Sterling, as concerns about the UK’s financial health rise ahead of the November 26 Autumn budget. Reports hinting at a potential £20 billion fiscal gap, alongside recent data showing UK inflation fell to 3.1% in September 2025, are adding to expectations of a Bank of England rate cut. This is contrasted by softer-than-expected retail sales figures, which reported a 0.5% decline last month, indicating a slowing UK economy.

Comparative Economic Outlook

While the Federal Reserve is expected to cut rates, the US economy seems more robust, with core inflation remaining stubborn at 3.5%. This situation gives the Fed less reason to cut rates aggressively compared to the Bank of England, making the US Dollar a more appealing currency. We view this relative strength as a key factor for the GBP/USD pair as the year comes to a close. For traders, buying put options on GBP/USD could be a smart move to benefit from a further decline, especially with significant central bank announcements coming up. This strategy allows them to profit from downward movements while keeping risk limited to the premium paid for the option. Shorter-dated options can be used to take advantage of the volatility around today’s Fed meeting, while longer-dated options can be employed for the period following the Bank of England’s decision in December. Another strategy to consider is shorting GBP/USD futures contracts, expecting that negative sentiment about the UK’s finances will grow. The upcoming budget on November 26 will be a crucial event, and any unfavorable news could push the Pound lower. We see this as a clear strategy based on the differing economic situations of the UK and the US. We have witnessed similar patterns before, and the lessons from the 2022 mini-budget crisis still resonate. That event showed how quickly market confidence can fade due to financial uncertainty, leading to a steep currency drop and an increase in government borrowing costs. While current worries may not be as severe, they reflect that period, underscoring a cautious, if not bearish, outlook on the Sterling. Create your live VT Markets account and start trading now.

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