The Pound Sterling is gradually moving down from last week’s highs towards a support level of 1.33. There should be limited domestic risk until the economic data is released on Friday. The Bank of England (BoE) has recently adopted a slightly more hawkish tone, shifting from its earlier dovish stance. MPC member Lombardelli has raised concerns about the risks of inflation because of capacity limitations. There is now a 92% chance of a 25 basis point rate cut at the BoE meeting on December 18. However, media reports suggest questions about whether this cut will actually happen, with major banks increasing their predictions for the terminal rate. The FXStreet Insights Team selects key market observations from experts, offering extra insights from various analysts. For the latest updates, you can check out the Orange Juice Newsletter, which provides daily expert content. Keep in mind that the information on this site is meant to inform you, not to suggest any buying or selling. You should do thorough research before making any investment decisions, as there are risks involved. FXStreet and its authors are not responsible for any investment losses you may incur. The Pound is currently trading cautiously, moving towards the 1.33 support level. While there is a slight bearish sentiment, major domestic news is limited until Friday’s reports on trade and industrial production. Today’s interest rate cut by the U.S. Federal Reserve has caused volatility, leading to a brief surge in GBP/USD, but now the main focus is on the Bank of England (BoE). There seems to be a major gap between what the market is pricing and what central banks are saying. The market is predicting a 92% chance of a 25 basis point rate cut by the BoE on December 18. However, recent statements from MPC members have shown more concern about inflation risks, which is backed by the latest UK CPI reading for November coming in at 3.1%, well above the BoE’s 2% target. Due to this disconnect, implied volatility on GBP options appears underpriced ahead of next week’s BoE meeting. A similar situation happened in late 2024 when the market fully expected a rate cut, but the Bank held steady, leading to a sharp increase in the pound’s value. A strategy of buying short-dated straddles or strangles could be beneficial, as it would profit from a significant price movement in either direction if the BoE surprises the market. Friday’s industrial production figures will be crucial as they will assess inflationary pressures against signs of a slowing economy. UK wage growth is still elevated at 5.7% year-on-year, which could lead the BoE to be more cautious about cutting rates than what the market currently predicts. This data may be the last key piece of information before the BoE’s decision on the 18th.

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