The pound has fallen against major currencies because the UK’s inflation figures were lower than expected. This has led to speculation that the Bank of England (BOE) may cut rates. In September, the Consumer Price Index (CPI) was at 3.8% year-on-year, below the forecast of 4.0%. Core CPI unexpectedly dropped to 3.5%, with a consensus estimate of 3.7%. The services CPI held steady at 4.7% year-on-year. The BOE’s next policy decision will be on November 6. Market expectations suggest a 70% chance of a 25 basis point cut, lowering the rate to 3.75% by year’s end. Over the next year, there’s an implied easing of 50-75 basis points, possibly bringing the policy rate down to 3.25%-3.50%. This comes as a potential fiscal drag is expected from the UK budget, which is set to be revealed on November 26. This situation could allow for further easing by the BOE.

The UK Inflation Impact

The UK’s gradual decrease in inflation reduces the risk of economic stagnation, helping to support the GBP/USD exchange rate. Current support levels are 1.3250 and 1.3216. The GBP is expected to perform poorly against the euro and Canadian dollar as the European Central Bank (ECB) ends its easing measures, while Canada is preparing to announce a stimulative budget. With UK inflation being lower than expected, the pound is likely to face downward pressure in the near term. Derivatives traders might consider short positions on GBP futures contracts, anticipating the BOE’s likely shift towards easing monetary policy by the end of the year. Recent data from early October 2025 showed that UK GDP growth slowed to just 0.1% in the third quarter, and retail sales unexpectedly declined. This mirrors the situation after the 2008 financial crisis, when slowing inflation and growth led to quick actions from central banks. This historical trend, combined with current economic softness, supports the case for a rate cut in November or December.

Trading Opportunities

For the GBP/USD pair, we are monitoring key support levels at the October 14 low of 1.3250 and the 200-day moving average near 1.3216. Traders might consider buying put options with strike prices below the current market price, which would benefit if the pound falls below these levels. This strategy allows a defined-risk bet on further weakness in sterling ahead of the Bank of England’s November 6 meeting. We also see potential in currency pairs, especially against the euro and Canadian dollar. As the ECB is likely done with its easing cycle, a long EUR/GBP position through futures or forward contracts seems appealing due to the divergence in monetary policy. Similarly, going long on CAD/GBP looks attractive since Canada’s government is about to deliver a stimulative budget on November 4, in contrast to the UK’s expected fiscal tightening. The upcoming Bank of England meeting and the UK budget on November 26 are expected to trigger significant price volatility. Traders should prepare for large price movements around these dates, making options strategies, like straddles, a good choice to take advantage of this turbulence. Additionally, traders can use interest rate swaps to directly react to the market’s expectation of a 25 basis point cut by year-end, which currently has a 70% probability. Create your live VT Markets account and start trading now.

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