The Pound Sterling is steady against the US Dollar at 1.3470. Despite a weak US Dollar Index, Sterling is losing value due to expectations of upcoming interest rate cuts from the Bank of England (BoE). This trend started after UK labor data revealed that the unemployment rate rose to 4.8%, the highest since March 2021. The money market predicts a rate cut of 46 basis points from the BoE this year, even though some members of the BoE disagree.

Opposition to Rate Cuts

Catherine Mann, a member of the BoE Monetary Policy Committee, is against further cuts, pointing to a slight weakening in the labor market. Chief Economist Huw Pill also warns against quick rate reductions due to ongoing inflation risks. The UK Chancellor announced no increase in wealth tax for the next budget, but further tax hikes and spending cuts are expected. Currently, the British Pound is at its weakest against the Swiss Franc. The US Dollar is under pressure because of trade disputes with China and forecasts of Federal Reserve rate cuts. Washington has imposed tariffs on China over rare earth export controls. Market expectations include at least a 50-basis-point Fed rate cut, putting more pressure on the USD. The GBP/USD pair is volatile, facing technical resistance near critical moving averages. The support level is at 1.3140, while resistance sits at 1.3500. We see mounting pressure on the Pound Sterling, as markets anticipate nearly two full rate cuts from the Bank of England before year-end. This comes after a weak jobs report that pushed UK unemployment to a four-year high of 4.8%. However, the September inflation report shows Core CPI stubbornly high at 3.1%, complicating things for policymakers. Since the US dollar is also under pressure, short-selling GBP/USD may take time. A better strategy could be positioning against currencies with more stable central banks, like the Swiss Franc, which has strengthened due to safe-haven demand. Data shows Sterling has dropped over 0.50% against the Franc today, suggesting this is a favored approach.

Derivative Trading Strategies

For derivative traders, buying put options on Sterling, especially against the Franc or Euro, offers a way to profit from potential declines while managing risk. We’re eyeing options that expire after the BoE’s November meeting to take advantage of any dovish shifts. The mixed signals from BoE members Mann and Pill against the market’s expectations could keep option volatility high, making spreads an appealing strategy. Remember how the BoE was pushed into a rapid rate hike cycle back in 2022-2023? Now, that tightening is manifesting its full impact on the UK economy. Meanwhile, the Federal Reserve is facing its own pressure to cut rates, especially after the disappointing US Non-Farm Payrolls report showed only 85,000 jobs added in September. This vulnerability in both central banks highlights the importance of relative economic performance. The Autumn Budget coming next week poses important risks worth monitoring. Chancellor Reeves has indicated fiscal tightening through tax raises and spending cuts, which could harm UK growth prospects. This would increase pressure on the Bank of England to mitigate the slowdown with monetary easing. Create your live VT Markets account and start trading now.

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