GBP/USD Decline

The GBP/USD fell more than 0.35% on Wednesday, dropping below the 1.3250 level. This decline is linked to growing expectations that the Bank of England will cut rates in November, along with speculation about the Federal Reserve’s upcoming policy decisions. During the European session on Wednesday, the Pound Sterling fell to nearly a three-month low around 1.3200 against the US Dollar. This coincided with a 0.2% rise in the US Dollar Index, which neared 99.00 ahead of the Fed’s policy announcement. For the second day in a row, GBP/USD hovered near 1.3250 during the Asian hours. The drop was influenced by the Pound’s weakness after the British Retail Consortium reported a sharp decline in UK food prices, approaching a five-year low and hinting at possible rate cuts from the Bank of England. We are seeing downward pressure on GBP/USD, reminiscent of times when central bank policies diverged. The markets are keenly focused on when the Bank of England (BoE) will start its rate cuts, similar to when the pair fell below its 200-day moving average. Currently, the pair trades around 1.2450, with all eyes on the BoE meeting next week. This situation feels familiar to late 2023 when expectations for a BoE rate cut caused the pound to drop toward 1.3200 against a strong dollar. Recent data shows UK inflation easing faster than expected, with the September 2025 CPI reading at 3.1%. As a result, money markets now price in a 60% chance of a rate cut by the second quarter of 2026, capping the Pound’s strength.

US Federal Reserve’s Impact

Meanwhile, the US Federal Reserve seems to be maintaining its current stance, but recent economic data is causing uncertainty. The last Non-Farm Payrolls report for September 2025 showed a slight miss at 165,000 jobs, indicating a weakening labor market. This has traders speculating whether the Fed may need to adopt a more dovish approach sooner than expected, leading to volatility in the currency pair. With this backdrop, options traders should prepare for potential swings around the central bank announcements. The implied volatility for one-month GBP/USD options has risen to 8.5%, signaling that the market is anticipating movement. A break below the key 1.2400 support level could trigger a swift decline, similar to a past technical breakdown. As a result, traders are positioning for this uncertainty by buying put options with strikes around 1.2350. This reflects historical patterns where sentiment against the pound shifted rapidly after breaching a crucial technical level. According to recent CFTC data, speculative net-long positions in GBP have decreased for the third week running, indicating that major players are cutting back their exposure. Create your live VT Markets account and start trading now.

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