The GBP/USD pair has seen some recovery but is still below the 1.31 level after the Bank of England (BoE) decided to keep interest rates steady. Currently, the pair trades at 1.3080, reflecting a rise of 0.26%. The BoE’s decision was made with a close 5-4 vote. Four members wanted a 25-basis-point rate cut. BoE Governor Andrew Bailey noted that any rate cuts would be slow and based on more data, stating that current policies remain tight. He also said inflation might have peaked but was cautious about confirming a neutral rate.

Job Cuts in the US

In the US, the Challenger report for October revealed a notable job loss, with over 150,000 jobs cut—the largest drop for that month in more than twenty years. Expectations for the Federal Reserve’s December meeting have shifted, now showing a 69% chance of a 25-basis-point rate cut. Chicago Fed President Austan Goolsbee advised caution on further rate cuts without official inflation data during the government shutdown. The estimated US Unemployment Rate increased to 4.36% in October, the highest in four years. According to technical analysis, GBP/USD needs to rise above 1.3100 to gain momentum toward 1.3257. Conversely, falling below 1.3050 could lead to a test of the recent low of 1.2707. The BoE’s 5-4 vote indicates a likely rate cut in December, which could put pressure on the Sterling. The UK’s CPI for September 2025 remains stubborn at 3.1%, down from a 2022 peak of over 11% but still above the target, placing the BoE in a challenging situation. This uncertainty adds to the volatility of the pound, particularly as the US economy shows signs of slowing.

Increased Implied Volatility in GBP/USD

The US labor market is showing clear signs of weakness, with AI-driven layoffs in October at their highest level for that month in over two decades. The estimated unemployment rate rose sharply to 4.36%, up from below 4% for much of 2023 and 2024. This situation has led markets to price in a 69% chance of a Federal Reserve rate cut next month. Given the uncertainty surrounding both the Fed and the BoE’s December meetings, we expect an increase in implied volatility for GBP/USD. This environment is perfect for options strategies like straddles, which could benefit from significant price changes in either direction. The goal will be to take advantage of premium increases leading up to these crucial central bank announcements. For those with a specific outlook, the 1.3100 level in GBP/USD is critical. Call options could be used to prepare for a break above this resistance, betting that weak US jobs data will affect the dollar more than the BoE’s dovish stance affects the pound. On the other hand, if the pair fails to break at 1.3100 and falls below 1.3050, put options can effectively hedge against a decline toward the psychological 1.3000 support. Create your live VT Markets account and start trading now.

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