The Pound Sterling (GBP) has dropped by 0.4% against the US Dollar (USD), making it the weakest G10 currency. This decline brings it back to levels seen in early August, according to analysts at Scotiabank. Attention is focused on the Bank of England (BoE), with the market expecting possible rate cuts at the meeting on November 6th. Currently, the market is anticipating a 9 basis points change for November and an 18 basis points change for December. Recent softer inflation data and worsening labor market conditions are influencing short-term rate expectations.

Interest Rate Differentials

Interest rate differentials are hurting the GBP, as spreads between UK and US rates have reversed. Studies show that the relationship between GBP and the spread has strengthened again. Recently, the GBP fell below the 200-day moving average of 1.3241 and the mid-October low in the mid-1.32s. The focus is now on the August 1 low around 1.3150. The Relative Strength Index (RSI) is low at 30 but has not yet reached oversold levels. The mid-1.31 area is a key support level, representing the lower bound since May, with expectations of a range between 1.3180 and 1.3280 in the near term. The Pound is showing notable weakness as we approach the end of October 2025. All eyes are on the Bank of England’s meeting on November 6th, where many expect a rate cut. This sentiment follows the recent UK CPI for September, which was just 2.1%, below expectations, putting pressure on the central bank to react. The gloomy outlook is supported by a weakening labor market, with the unemployment rate recently rising to 4.5% and wage growth slowing. The interest rate gap between the UK and the US is also tilting against the Pound. In fact, the difference between 2-year UK gilts and US Treasuries has widened by another 10 basis points in favor of the dollar this past week.

Positioning Strategies

Given the clear direction and the upcoming BoE decision, buying GBP/USD put options appears to be an effective strategy. This approach allows us to prepare for a drop while limiting potential losses ahead of a volatile event. Targeting strikes around the 1.3150 level, the low from August 2025, could be a main goal. We have already fallen below the 200-day moving average, which is a bearish signal for the Pound. The mid-1.31s now serve as an important support level, and breaking below it would likely accelerate the decline. This situation is reminiscent of the dovish shift from the BoE in 2019, which led to a prolonged period of underperformance for the Pound. Create your live VT Markets account and start trading now.

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