The Pound Sterling has lost value against major currencies after UK inflation data for November came in weaker than expected. This, along with worries about employment, raises the likelihood of an interest rate cut by the Bank of England (BoE). The UK Consumer Price Index (CPI) showed an annual rise of 3.2%, which is lower than prior estimates. In November, the core CPI (excluding food, energy, alcohol, and tobacco) also increased by 3.2%. Monthly inflation fell by 0.2%, while inflation in the services sector dropped to 4.4%.

UK Employment Data

UK employment figures for the end of October revealed an ILO Unemployment Rate of 5.1%, the highest in almost five years. These developments suggest that the BoE may change interest rates soon. The Pound Sterling has weakened against the US Dollar, dropping 0.7% to 1.3310. Meanwhile, the US Dollar Index has increased by 0.4% as it recovers from a recent low. The US Nonfarm Payrolls report showed mixed results, with an unemployment rate of 4.6%. According to the CME FedWatch tool, the US Federal Reserve is likely to keep interest rates steady in early 2024. Future attention will be on US CPI data and its potential impacts. Technical analysis indicates that GBP/USD is facing downward pressure, with vital resistance and support levels. As we approach the year’s end, the Pound continues to weaken significantly. The latest November UK inflation data showed a drop in the CPI to 2.4%, moving closer to the Bank of England’s target but also signaling a slowing economy. This situation brings to mind similar events in late 2021, when a surprisingly low inflation report led to a sharp decline in the Sterling.

US Dollar Resilience

This decline in inflation occurs alongside a rising unemployment rate, which has increased to 4.5%. The combination of lower price pressures and a weaker job market adds to the case for the Bank of England to cut interest rates early next year. As a result, markets are factoring in a greater chance of a rate cut in the first quarter of 2026. In contrast, the US Dollar remains strong. The Federal Reserve recently held interest rates steady at 4.25%, and with US inflation staying high at 2.8%, their stance is one of tight policy. This growing gap between a dovish BoE and a cautious Fed points to potential weakness for GBP/USD. For derivative traders, this outlook suggests preparing for further declines in the Pound against the Dollar. Purchasing GBP/USD put options with January or February 2026 expirations could allow traders to profit from this expected drop while clearly defining their maximum risk. This strategy becomes more appealing if the pair falls below the crucial support level of 1.2300. We should also explore strategies that take advantage of the limited upside for the Pound. Selling out-of-the-money call options on GBP/USD may be an effective way to earn premium, assuming that economic data will keep any major rallies at bay. This tactic is well-suited for a market where we expect the currency to either fall or trade sideways in the upcoming weeks. Create your live VT Markets account and start trading now.

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