GBP/USD fell to around 1.3120 during Asian trading hours on Friday, following a 1% increase in the previous sessions. This drop came after the Bank of England decided to keep interest rates at 4% in November. Four out of the nine Monetary Policy Committee members even suggested lowering rates to 3.75%, which indicates a dovish outlook. On Thursday, the pair had risen due to bearish market sentiment and a narrow vote on interest rate adjustments by the Bank of England. This fueled hopes for economic support despite ongoing high inflation. While the decision to maintain interest rates was expected, the close five-to-four vote did grab attention.

Focus on BoE’s December Meeting

As of Friday, GBP/USD is trading at 1.3080, marking a 0.26% gain. The spotlight is now on the Bank of England’s meeting in December, where the current vote split remains at 5-4 in favor of keeping the Bank Rate steady. Governor Andrew Bailey pointed out that September’s inflation rate held steady, but more data is needed to confirm trends. Bailey also stressed uncertainty about neutral rates, acknowledging that current policies are still restrictive. He highlighted the importance of ensuring inflation trends towards the 2% target before considering more rate cuts. The recent close 5-4 vote to hold rates is a significant indicator. This dovish stance suggests that the central bank might be preparing to cut interest rates soon, possibly during the December meeting. Consequently, this outlook could put pressure on the Pound Sterling against the US Dollar. Given this context, traders might want to explore strategies that capitalize on a declining GBP/USD. One option is to buy put options that expire after the next rate decision. Another strategy could be selling out-of-the-money call spreads, aiming for a profit if the currency pair does not make significant gains.

Revisiting Inflation Trends

This scenario is similar to what we saw in 2024, when inflation started to gradually decrease. During that time, the UK’s annual CPI rate dropped from 4.0% in January to 2.3% by April, opening the door for the Bank of England to cut rates later that summer. It seems we might be entering a similar phase, where declining inflation leads to monetary easing. All attention will now be on the upcoming UK inflation and GDP reports ahead of the December meeting. Recent data from the Office for National Statistics showed that the UK economy only grew by 0.1% in the third quarter of 2025, highlighting weaknesses that worry some MPC members. Any further decline in economic data could likely trigger a rate cut and accelerate the Pound’s decrease. Create your live VT Markets account and start trading now.

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