**Market Optimism Over US Shutdown** Federal Reserve officials shared mixed messages. Alberto Musalem from the St. Louis Fed highlighted the economy’s strength and noted inflation around 3%. Meanwhile, Mary Daly from the San Francisco Fed said that inflation in goods prices remains stable, and the recent interest rate cut helps labor markets while having a small impact on inflation. Market players see a 60% chance of a Federal Reserve rate cut in December after comments from Chair Jerome Powell. In the UK, the Bank of England kept rates unchanged, with a close 5-4 vote seen as dovish, leading to hopes for a December rate cut. BoE Governor Andrew Bailey emphasized that decisions will depend on upcoming UK GDP and employment data. The November budget is also crucial, with analysts expecting possible rate changes from Finance Minister Rachel Reeves. GBP/USD is facing pressure below the key levels of 1.3254/65, where simple moving averages intersect. Bulls need to push above 1.3200, targeting 1.3250, while bears must drop below 1.3100 to test the recent low at 1.3020. Currently, the GBP/USD pair is stuck around 1.2750 as conflicting signals from both sides of the Atlantic keep traders anxious. Ongoing US budget talks provide mild support for the dollar, while ongoing UK inflation worries weigh on the pound. This consolidation hints at a major move in the weeks ahead. **US Markets and Fed Predictions** In the US, futures markets now show a 55% chance of a Federal Reserve rate cut by March 2026, a slight rise from last month. This is notable, especially since recent CPI data from October 2025 shows inflation stubbornly at 2.9%, far above the Fed’s 2% target. The mixed signals from Fed officials add to the uncertainty about their future actions. The Bank of England faces a tougher challenge, with the latest UK inflation at 3.5% and GDP growth stagnant at 0.1%. The BoE’s data-driven approach makes the upcoming jobs report and preliminary Q4 GDP figures critical. Any signs of economic weakness could push the bank to adopt a more dovish stance, adding pressure to the pound. For derivative traders, this low volatility period but high tension is a good chance to consider buying options. Long volatility strategies, like a straddle or strangle on GBP/USD, could work well to catch a breakout ahead of essential UK data releases. The current market uncertainty means option premiums are relatively attractive given the potential risks. The technical outlook for GBP/USD is bearish as long as prices stay below the 50-day moving average, currently at 1.2820. While there is a clear bearish trend, sellers haven’t succeeded in breaking the crucial support at 1.2680. A decisive drop below this level could lead to testing September 2025 lows around 1.2550. The sharp currency swings seen in 2022 and 2023 remind us how quickly central bank policy differences can affect this pair. During that time, aggressive rate hikes from both the Fed and the BoE caused significant volatility. The current situation, with both central banks at a pivotal moment, may lead to a similarly sharp market reaction. Create your live VT Markets account and start trading now.

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