The Federal Reserve’s Expected Decisions

The Federal Reserve is expected to lower rates by 25 basis points and hint at two more cuts later this year. The Bank of England (BoE) is likely to keep its bank rate steady. Recent UK data shows surprising CPI numbers and strong, though mixed, Flash PMIs, indicating ongoing inflation. In technical analysis, GBPUSD shows buyers targeting 1.3789 if it stays above 1.3589. Conversely, if it drops below 1.3589, sellers may push it down towards 1.3368. Key upcoming data includes UK employment figures, US retail sales, UK CPI, the FOMC’s policy announcement, BoE’s rate decision, and US jobless claims. These releases will shape market movements this week. GBPUSD is facing a crucial resistance level, offering a chance to act based on the differing policies of the US and the UK. With the US dollar weakening due to expectations of rate cuts, we might see a breakout soon. This situation favors strategies that profit from rising prices and increased market volatility. We are considering buying call options with strike prices above 1.3600, with a first target around 1.3750. Recent data from the CME indicates rising interest in call options around 1.3700, hinting at institutional interest in a rally. This strategy provides a way to manage risk while capturing potential gains if momentum builds.

High Event Risk Ahead

The upcoming FOMC and BoE meetings, along with key inflation data, create a week of high event risk. History shows that weeks with announcements from two central banks often lead to increased volatility. Traders uncertain of direction but expecting a significant price move could consider long straddles or strangles. The market expects the Fed to cut rates by 25 basis points this Wednesday, with Fed Fund futures indicating an 88% chance, according to the CME FedWatch Tool. This supports the dovish outlook for the USD that has been developing since the weak jobless claims report from early September 2025. If the Fed surprises us with a hawkish tone, it could disrupt the bullish outlook for the currency pair. On the flip side, the BoE is predicted to maintain its stance, which supports the pound. UK core inflation recently came in at 3.1% in August 2025, well above the BoE’s target, limiting room for any dovish signals. This difference between a cutting Fed and a holding BoE drives our bullish perspective. Our main risk is a ‘false breakout.’ If the price fails to stay above 1.3590 and drops lower, we may need to adjust. To protect our long positions, we can buy put options with a strike price just below 1.3550. If the price decisively breaks below this level after the news, these puts could become our primary bearish position. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now