The GBP/USD currency pair has been on the rise for two days, bouncing back from around the 1.3000 level, which was nearly a seven-month low. This recovery is mainly due to a weaker US Dollar. However, trading activity remains cautious, as many traders are waiting for the Bank of England’s (BoE) policy update before making any big moves. The BoE is likely to keep the interest rate at 4.0%. Still, there’s a chance of a surprise cut due to falling inflation and ongoing fiscal issues. Weakness in the UK labor market raises the possibility of a 25-basis-point cut happening sooner than anticipated. Concerns about the UK’s financial situation are also weighing on the British Pound, complicating the GBP/USD outlook.

Pound Under Pressure

On Thursday, GBP/USD is looking for support around 1.3062 as traders await the BoE’s monetary policy announcement. The pound is under pressure, trading at a seven-month low against the US dollar and its weakest level against the euro in over two years. The market sees about a one-in-three chance of a 25-basis-point cut, which could lead to increased volatility based on the BoE’s decision. The GBP/USD pair is trying to bounce back from its seven-month low near 1.3000. However, traders are hesitant to commit before the Bank of England’s meeting. The tension in the market continues as we await a decision that could influence trading for weeks to come. The main uncertainty is the BoE’s interest rate decision, currently at 4.0%. While most expect no change, recent data shows UK inflation for October 2025 at 2.1% and the unemployment rate rising to 4.5% in the third quarter. These factors have increased the likelihood of a surprise rate cut to around one-in-three, presenting a real challenge for the central bank and the pound. Given this situation, we should brace for increased volatility. Derivative traders might explore strategies like long straddles or strangles on GBP/USD. These strategies could benefit from significant price movements in either direction, regardless of whether the BoE maintains its current stance or unexpectedly cuts rates. This reflects the market’s uncertainty.

Preparing For Volatility

For those already invested in sterling, hedging is essential in the coming weeks. Purchasing out-of-the-money put options on GBP/USD can offer a cost-effective way to protect long positions from a sudden decline if the BoE hints at a more aggressive easing strategy. This acts as a safety net against the considerable risk of loss. The weakness of the US Dollar is also a factor, but we shouldn’t depend on it lasting. The latest US Non-Farm Payrolls report for October 2025 showed a cooling job market, with only 150,000 jobs added. This supports the idea that the Federal Reserve’s rate-hiking cycle has ended. Although this creates a temporary cushion for GBP/USD, the BoE’s decision remains the main influence. We’ve witnessed similar risk scenarios before where the market is poised for a significant move. In August 2023, a surprise rate hike by the BoE led to an immediate multi-day trend. That situation teaches us that it’s often smarter to prepare for volatility rather than try to predict the market’s exact direction. Create your live VT Markets account and start trading now.

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