The GBP/USD pair is on the rise, currently near 1.3365, as traders anticipate a Federal Reserve interest rate cut. The US Dollar is weakening after US CPI data came in lower than expected, suggesting that a rate cut is likely soon. On Monday, GBP/USD bounced back from 1.3300, breaking a six-day losing streak as focus shifts to the upcoming Fed rate decision. Most expect a second rate cut, and traders are keenly watching for hints about a potential third cut in December.

Impact Of US-China Trade Talks

Right now, GBP/USD is trading at about 1.3319, up 0.07%, buoyed by hopes that the US-China trade war might ease. Additionally, falling UK inflation has led to speculation about a possible rate cut by the Bank of England in December. A meeting between US and Chinese leaders this week could also influence currency movement. All eyes are on the Federal Reserve’s decision tomorrow, where a quarter-point rate cut is mostly anticipated. This expectation is contributing to the recent weakness of the US Dollar, pushing GBP/USD closer to 1.3365. This marks a positive shift in sentiment after a six-day decline. We view this as part of the policy changes that began earlier this year after aggressive rate hikes in 2023 and 2024 aimed at controlling inflation. The latest US Consumer Price Index shows inflation at 3.0% year-over-year, down from 4.0% in late 2024, allowing the Fed to continue easing. This trend suggests that the dollar’s years-long strength is fading.

Trading Strategies For Upcoming Announcements

For options traders, implied volatility on GBP/USD options is expected to rise ahead of the announcement. A key focus will be the Fed’s guidance on a possible third cut in December, which could lead to significant price movements. Strategies like long straddles may be beneficial for those looking to capitalize on market swings after the announcement, regardless of which direction the price moves. On the other hand, we’re also monitoring the Bank of England, as expectations for a December rate cut there are growing. UK inflation has dropped to 2.8% from higher levels earlier this year, but the Bank of England may proceed with caution. This policy difference will be important for the pound’s direction in the near future. Optimism about a potential US-China trade thaw, with a meeting expected this week, is supporting risk-sensitive currencies like Sterling. This positive sentiment has helped the pair recover from below 1.28, levels seen during much of 2024. Traders who are optimistic about both a dovish Fed and a good trade outcome might consider buying short-term call options on GBP/USD for potential gains. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now