**US Federal Reserve Future Outlook** US President Donald Trump plans to announce a new Fed Chair to succeed Jerome Powell next year, with Kevin Hassett as the top candidate. This choice may impact interest rate policies. In the UK, Prime Minister Keir Starmer supports a budget announcement in November that hints at a possible interest rate cut by the Bank of England in December. Most analysts believe the central bank will lower rates to 3.75%, with a 90% chance of this happening. Catherine Mann from the Bank of England noted that changes in US foreign policy could impact the USD’s role as a global reserve currency. The GBP/USD pair is pulling back to 1.3330 on December 4th, 2025, after reaching a multi-month high. This pullback is driven by renewed demand for the US Dollar, but we expect it to be temporary. The key focus in the next two weeks is on interest rate decisions from the Federal Reserve and the Bank of England. **Interest Rate Decisions** A rate cut by the Fed next week seems likely, considering the ongoing economic slowdown in 2025. The ISM Manufacturing PMI has shown fifteen straight months of contraction, with a recent figure of 46.5 for November 2025. Additionally, weekly jobless claims have risen to 235,000, reinforcing the need for the Fed to act in support of the economy. The derivative markets are reflecting this expectation. The CME FedWatch tool shows a 92% probability of a 25-basis-point cut at the December meeting. This anticipated move may limit US Dollar strength and help GBP/USD. However, the outlook for Sterling is complicated by a dovish stance from the Bank of England. With UK headline inflation at 2.8% in October 2025, the BoE is expected to cut rates this month to combat sluggish growth. The market is predicting a nearly 90% chance that the BoE will lower its rate to 3.75%. Both central banks are looking to ease policies, meaning GBP/USD direction will depend on who acts more aggressively as we enter 2026. The upcoming Fed Chair announcement in the US suggests the possibility of more substantial and quicker rate cuts, indicating a weaker outlook for the US Dollar compared to the Pound in the medium term. For traders, the current dip in GBP/USD might be a good opportunity to enter long positions. High volatility around central bank meetings is expected, so using options could be smart. We believe buying GBP/USD call options expiring in March 2026 could effectively position against sustained dollar weakness while managing downside risk. Create your live VT Markets account and start trading now.

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