GBP/USD is stable around 1.3245 during Monday’s Asian trading session. The market is processing the UK’s Autumn Budget, which might boost the Pound against the Dollar. With rising chances of a Federal Reserve rate cut, there is now an 87% expectation for a 25 basis point reduction in December. In the Autumn Budget, UK Chancellor Rachel Reeves announced tax increases and changes affecting businesses, benefits, and pensions. The Office for Budget Responsibility updated the 2025 UK growth forecast from 1.0% to 1.5%. However, forecasts for 2026 and beyond were lowered to 1.4% and 1.5%, respectively. These revisions could provide some short-term support for the Pound.

Federal Reserve and Market Expectations

The idea of a rate cut gained traction after Federal Reserve officials made dovish comments. Fed Governor Christopher Waller mentioned a weak labor market, while San Francisco Fed President Mary Daly called for a rate reduction due to concerns about job growth. The US November ISM Manufacturing PMI report is expected later today. The Pound Sterling is the official currency of the UK, issued by the Bank of England. It is a significant global currency, and its value is influenced by BoE monetary policy, economic data, and the trade balance. Interest rate decisions, economic indicators, and trade performance all affect the strength of GBP. Right now, the focus is on the Federal Reserve, with markets predicting an 87% chance of a rate cut this month. This heavy leaning against the Dollar suggests considering the purchase of GBP/USD call options to take advantage of potential gains. A weak US ISM Manufacturing PMI report later today would likely strengthen this outlook and push the currency pair higher.

Strategies and Market Reactions

The Fed’s dovish position follows the weak October Non-Farm Payrolls report, which showed only 85,000 new jobs—much lower than expected. This slowdown in the US labor market gives officials like Waller and Daly a reason to push for a rate cut. Therefore, any strategy betting against the US Dollar appears well-supported by recent economic data. On the UK side, the pound is getting support from the updated OBR growth forecast for 2025, now at 1.5%. While this isn’t outstanding, it contrasts sharply with the slowing US economy. With UK inflation at 2.9% in October, the Bank of England is expected to maintain rates, creating a positive interest rate differential for the Pound. We recall the high inflation and central bank interest hikes of 2023, and the current policy divergence feels like the next chapter of that story. Selling out-of-the-money GBP/USD put options could be a good strategy for those who believe the downside is limited by Fed weakness. However, we should be alert for any unexpectedly strong US data that could quickly change these rate cut expectations. Create your live VT Markets account and start trading now.

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