During North America’s trading session on Friday, GBP/USD fell to 1.3220 due to the Autumn Budget. However, the pair still finished the week nearly 1% higher, reaching a daily high of 1.3244. On Friday, GBP/USD continued to rise for the seventh day in a row, staying around 1.3240 during Asian trading hours. This increase was mainly because the US Dollar weakened, as expectations grew for a Federal Reserve rate cut in December.

Impact of the Autumn Budget

By Thursday, GBP/USD remained stable near 1.3230 as the market assessed the UK’s Autumn Budget. This steadiness occurred during a period of lower trading activity, as US markets were closed for Thanksgiving, and the rate was 1.3232 later in the day. There is strong momentum suggesting that the Federal Reserve will lower interest rates in December. According to CME FedWatch Tool data, the market sees an 88% chance of a rate cut, which explains the US dollar’s recent decline. This trend has pushed pairs like GBP/USD to multi-month highs. The British pound is benefiting from the weak dollar, with GBP/USD staying above 1.3200. While US inflation has dropped to 2.8%, as stated in the latest CPI report, UK inflation remains higher at 3.4%. This difference in inflation rates hints that the Bank of England may keep rates higher for longer, helping the pound in the short term.

Future Market Speculations

Looking back, the rise in gold prices to over $4,200 per ounce highlights the high inflation we experienced in 2024. Traders are cautious after that situation. Buying call options on GBP/USD could be a smart move to gain from further dollar weakness while managing risk. This strategy is especially relevant, as the pair has broken through several key resistance levels this month. Upcoming data will play a crucial role in confirming the market’s outlook on the Fed. Next week’s Non-Farm Payrolls report is vital, with analysts predicting a modest increase of just 110,000 jobs, a sharp decline from earlier in the year. If the number comes in weaker than expected, it would likely confirm a rate cut in December. Given that the market is heavily positioned for a cut, the main risk is a sudden hawkish shift from the Fed or unexpected strong US economic data. Therefore, we should think about hedging long positions with out-of-the-money puts on currency pairs like EUR/USD and GBP/USD. This approach offers a cost-effective way to guard against a sudden reversal in the dollar. Create your live VT Markets account and start trading now.

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