The GBP/USD rose in Thursday’s North American session, thanks to a US inflation report and the Bank of England’s (BoE) rate decision. The pair now trades at 1.3410, marking a 0.28% increase after reaching a daily low of 1.3340. The Pound Sterling is gaining strength after the BoE cut interest rates by 25 basis points, lowering them from 4% to 3.75% with a close 5-4 vote. The GBP/USD has had a hard time taking advantage of a bounce from a one-week low of 1.3310, staying mostly in a narrow range during the Asian session. Current prices are around 1.3370, down less than 0.10% as traders get ready for upcoming central bank actions and US inflation data.

The BoE’s Rate Cut

The BoE’s decision to cut rates to 3.75% was more hawkish than expected, giving a slight boost to Sterling. This decision leaves the timing of future rate cuts uncertain, expected between February and March. In other market news, Ripple (XRP) is trading between $1.82 and $2.00, while Bitcoin is targeting a breakout above $87,000, supported by rising ETF inflows. Overall, the GBP/USD is showing stability amid monetary changes, with varying reactions in other currencies and commodities. Given the soft US inflation data and the BoE’s narrow 5-4 decision to cut rates, we should expect continued strength in GBP/USD. The market views the BoE as more hawkish than the Federal Reserve, which helps the pound against a weakening dollar. We can consider using call options on the pound to capture potential gains heading into the new year while managing our downside risk. This scenario is reminiscent of late 2023 when UK inflation remained higher than in the US, compelling the BoE to hold a firmer stance. Data from that period showed UK CPI around 4% while US CPI had dropped to nearly 3%. This past difference supports our belief that the pound may continue to outperform into the first quarter of 2026.

Volatility and Upcoming Data

The split vote from the Bank of England highlights significant uncertainty about their next steps, which is likely to cause more volatility. With low trading volumes expected during the holiday season, traders might consider buying straddles on GBP/USD. This strategy could profit from any large price movement in either direction without needing to predict the exact outcome. Next, all eyes are on the upcoming US Core PCE Price Index, the Federal Reserve’s favored measure of inflation. The latest US CPI report for November 2025 showed an annual rate of just 1.9%, below the Fed’s target, causing a sell-off of the dollar. If the forthcoming PCE data reinforces this cooling trend, it could lead to another drop for the dollar, making put options on the US Dollar Index (DXY) an appealing strategy. Additionally, the dollar’s weakness is driving rallies in assets like gold and Bitcoin. Gold is pushing toward $4,381 an ounce, and Bitcoin’s upward momentum indicates capital is flowing out of the dollar. We can utilize futures contracts to tap into this broader trend, which aligns with our bearish outlook on the US currency. Create your live VT Markets account and start trading now.

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