GBP/USD is stable around 1.3140 as the week begins, with traders waiting for the Bank of England’s interest rate announcement. There’s a chance of a 25-basis-point rate cut to 3.75%, especially since UK consumer price growth has slowed and labour demand is easing. The Institute for Supply Management’s Purchasing Managers Index dropped to 48.7 in October, down from 49.1 in September, indicating ongoing contraction in manufacturing. This marks eight months of decline. While demand indicators are improving, they still show contraction.

Pound Sterling Cautious Ahead of BoE

Pound Sterling is cautious as traders anticipate the BoE’s policy statement, reflecting speculation about a possible rate cut. The BoE previously indicated that inflation might peak around 4% in September, emphasizing the need for ongoing economic assessments. Traders link GBP/USD’s movements to wider market evaluations and economic data. As the market processes these changes, any adjustments to policy or economic outlooks will likely influence future currency trends. With GBP/USD fluctuating around 1.3150, uncertainty is rising ahead of the Bank of England’s decision on Thursday. Implied volatility for one-week pound options has reached its highest level in three months, indicating a divide in the market regarding a potential rate cut. This situation makes buying volatility appealing for derivative traders.

Market Pricing and Strategy

The market, specifically the Sterling Overnight Index Average (SONIA) futures, suggests an 8-basis-point cut is likely, corresponding to a one-in-three chance of a full 25-basis-point reduction. Recall the sharp 150-pip rally in GBP/USD after the BoE’s unexpected hawkish stance in May 2025 when similar dovish chances were factored in. A similar scenario this week could push the pound higher as bearish positions are unwound. Given the binary nature of this event, a long straddle using options expiring at the end of the week may be a smart strategy. This would benefit from a significant price movement in either direction—whether the BoE cuts rates and causes the pound to drop or holds steady, leading to a relief rally. The weak US ISM manufacturing data, which came in at 48.7 in October, provides some support for the currency pair and may limit downside risk even if the BoE is dovish. Traders might also think about selling out-of-the-money put options on GBP/USD with a strike below the 1.3000 level. This strategy collects premiums while anticipating that a combination of a potential BoE hold and ongoing US economic weakness will stop a major drop in the pound. Although this is a higher-risk strategy, it allows for profit if the pair stays within its current range or rises. Create your live VT Markets account and start trading now.

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