The Pound Sterling has bounced back against the US Dollar, with GBP/USD reaching new monthly highs above 1.3250. This recovery is linked to the UK’s Autumn Budget, potential interest rate cuts by the Bank of England, and expected reductions by the US Federal Reserve in December.

Autumn Budget and Interest Rates

Right now, GBP/USD is steady around 1.3245. There’s little downside expected due to the possible Federal Reserve rate cuts in December. UK Chancellor Rachel Reeves has revealed the Autumn Budget, featuring tax increases and changes to business rates, benefits, and pensions. The Office for Budget Responsibility has raised its 2025 growth forecast for the UK from 1.0% to 1.5% after the budget. However, estimates for 2026 were lowered to 1.4%, with further declines for subsequent years. This situation may provide a small boost for the Pound against the Dollar in the short term. Other content includes different currency and market forecasts, along with broker recommendations for future trading strategies. This information is for reference only, highlighting the importance of personal research before making investment choices. The Pound remains stable against the Dollar around 1.3250, but this balance feels fragile. The market is heavily betting on the US Federal Reserve cutting interest rates this month, which is helping the pair rise. However, the possibility of the Bank of England also considering cuts may limit any significant rally.

Inflation and Trading Strategies

We believe the market’s focus on a Fed cut is supported by recent data showing US inflation eased to 3.1% in November 2025. Meanwhile, the jobs report remained strong with an addition of 199,000 new jobs. Traders are now estimating about an 85% chance of a rate cut at the Fed’s December meeting. Today’s US ISM Manufacturing report will be an important test for this outlook. In the UK, inflation has also cooled to 3.9%, giving the Bank of England room to consider its own rate cuts in early 2026. While the Autumn Budget provided a short-term boost to the Pound, we are wary about the OBR’s weaker growth forecasts for 2026 and beyond, which could start to impact the currency soon. In the upcoming weeks, we see value in buying GBP/USD put options that expire in January 2026. This strategy allows for potential profit from a downturn if US economic data turns out stronger than expected, or if the Fed appears less inclined to cut rates. A strike price close to 1.3150 would provide a balanced risk-reward scenario. Alternatively, given the uncertainties surrounding both the Fed and Bank of England policies, we anticipate increased volatility. Traders might consider option straddles—buying both a call and a put—to capitalize on significant price movements in either direction around the mid-December central bank meetings. This approach focuses purely on price movement, not the direction. Create your live VT Markets account and start trading now.

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