The GBP/USD exchange rate went up after the Bank of England cut rates by 25 basis points. This decision revealed a split committee, with a close vote of 5-4, instead of the expected 7-2. The committee had to vote twice because opinions were very different in the beginning. Governor Andrew Bailey mentioned that there are still risks related to inflation and growth, but he is unsure about the future of interest rates.

Economic Factors Influencing The Market

Bailey highlighted slow wage growth and postponed business investments. Deputy Governor Ramsden pointed out unexpected UK inflation, which he linked to supply issues. Fears of a recession were minimized, with Bailey saying that updated GDP forecasts were based on new data rather than a change in how the economy is viewed. In trading terms, GBP/USD moved above the 38.2% retracement level from July to August and crossed its 100-day moving average. The previous resistance levels between 1.33607 and 1.3378 became support, showing a bullish trend. With this positive momentum, the target is now set at the July-August 50% midpoint of 1.3463. Even though there were declines below June’s 100-day average, the overall trend has been upward since January. Recent price movements have strengthened the buyers’ position in the market. The unexpected 5-4 vote on the rate cut indicates the Bank of England may not want to ease policies further. This change in perspective makes bullish strategies on GBP/USD more appealing. The prior resistance around 1.3378 has now formed a solid support base for any pullbacks.

Trading Strategies And Market Outlook

This outlook is supported by the latest UK inflation data from July 2025, which showed a stubborn 3.1%, backing the MPC’s cautious approach. Additionally, last week’s US jobs report revealed only 160,000 new jobs, which pressured the dollar side of the currency pair. This mix of a cautious BoE and a weaker US economy sets a positive backdrop for the pound. In the upcoming weeks, we plan to buy call options to take advantage of this upward momentum. September 2025 call options with a strike price near 1.3500 provide a favorable risk/reward balance, aiming for the next resistance near 1.3463. This tactic allows us to benefit from an increase in GBP/USD while keeping potential losses limited to the premium paid. Due to rising uncertainty, implied volatility has increased, leading to slightly higher options prices. To manage this expense, traders might consider utilizing a bull call spread, such as buying the September 1.3450 call and selling the 1.3550 call. This approach reduces the initial investment but limits potential profits. We’ve seen similar trends in the past, like during the 2022-2023 period, when divided central bank decisions often resulted in short-term currency strength. The recent trading patterns also confirm the long-term uptrend that began in January 2025. The inability to fall lower last month showed that interest from buyers remains strong. Create your live VT Markets account and start trading now.

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