In the UK, the economy grew by 0.1% in August, according to the Office for National Statistics. This followed a decline in July. Weak job data and slow wage growth could lead the Bank of England to cut rates, with a 44% chance of this happening in December.

Performance Against Other Currencies

This week, the British Pound performed best against the Australian Dollar. It increased against major currencies like the Euro (EUR) and Japanese Yen (JPY) but fell against the Swiss Franc (CHF). Markets expect the Bank of England to cut rates by a total of 53 basis points by the end of 2026. We’ve seen similar situations before, like during the Trump era when just one comment about China could affect the US Dollar. Right now, GBP/USD is trading near 1.22, making the 1.34 level from that time seem far away. However, the key factors affecting central bank policies and economic concerns remain unchanged. Traders should focus on the differing tones of the US Federal Reserve and the Bank of England. In the US, inflation is still a major worry. The latest Consumer Price Index (CPI) report for September 2025 showed inflation cooling to 3.1%. Although job growth is slowing, the Fed is committed to maintaining current rates to keep inflation in check. According to the CME FedWatch Tool, there’s only a 25% chance of a rate cut before March 2026, which is a big shift from earlier expectations. Meanwhile, the UK situation is weaker, leading to rising expectations for an early rate cut by the Bank of England. The UK economy shrank by 0.2% in August 2025, and with wage growth stalling, the Bank of England faces pressure to respond. Market predictions for a rate cut in December 2025 have risen to over 60%, showing a clear difference in policy from the Fed.

Strategies for Traders

This policy divide means traders should be ready for continued downward movement in the GBP/USD pair. Options traders might look at buying puts on the pound or setting up bearish put spreads to profit from a potential drop towards the 1.20 support level. This strategy limits risk while taking advantage of the negative outlook on the UK economy. As we approach central bank meetings in November and December, volatility is expected to rise. For those aiming to hedge or directly trade this volatility, a long straddle on GBP/USD could work well, allowing profit from significant price changes in either direction. Historically, when central banks are this divided, currency pairs tend to move sharply. Finally, watch the pound’s strength against other currencies, much like its past performance. Although it’s weak against the dollar, how it performs against the Euro or Yen will depend on their economic data. Derivative trades that pair a weak GBP with a currency like the Swiss Franc, which has a more stable or hawkish outlook, may present alternative trading opportunities. Create your live VT Markets account and start trading now.

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