The Pound Sterling is holding steady at around 1.3230 against the US Dollar during Monday’s European trading session. This stability comes as the US Dollar weakens due to strong expectations that the Federal Reserve will cut interest rates in its next policy meeting. The US Dollar Index, which measures the Dollar against six major currencies, has dropped to a new two-week low near 99.30. The GBP/USD pair has slipped below 1.3225, as forecasts for a Federal Reserve rate cut increase. Traders believe there is an 87% chance of a 25 basis point cut next week, according to the CME FedWatch tool.

UK Autumn Budget

Last week, UK Chancellor Rachel Reeves presented the Autumn Budget, which adjusted taxes, business rates, benefits, and pensions. The budget provides more fiscal clarity and may lead to a small relief rally for the Pound Sterling against the US Dollar. Currently, GBP/USD is consolidating around 1.3230 as markets look forward to important economic data and next week’s Federal Reserve meeting. The high likelihood of a US rate cut, now over 85%, is putting pressure on the Dollar. This environment may encourage traders to use short-term options to take advantage of expected volatility around the Fed’s announcement. The case for a Fed rate cut is strengthened by recent economic data. The latest Consumer Price Index report for October 2025 reveals that inflation has cooled to 2.8%, while the previous jobs report showed a slowing labor market. Traders should keep an eye on today’s US ISM Manufacturing PMI; a reading below 50 would boost expectations for looser monetary policy.

UK Economic Struggles

On the UK side, the economy is facing challenges with slow growth, as shown by the last GDP report that indicated only 0.1% expansion. While last week’s Autumn Budget brought some fiscal clarity, UK inflation remains stubbornly high at 3.5%. This suggests that the Bank of England is unlikely to support the Pound, limiting its potential upside. It’s important to remember that the current trading level above 1.32 is historically strong for the Pound, especially when considering the lows of 2022 and 2023. With a bearish technical setup and prices below the 100-day moving average, a surprise from the Fed could lead to a sharp sell-off. Thus, buying protective put options with a strike price near 1.3100 may be a wise strategy against any unanticipated hawkish moves from US policymakers. Create your live VT Markets account and start trading now.

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