The New Zealand Dollar (NZD) weakened at the start of the week as risk appetite declined. Although strong trade data from China suggested increased demand for cyclical currencies, it wasn’t enough to lift the NZD. The Reserve Bank of New Zealand (RBNZ) provided some support against this drop. On Monday, the NZD/USD pair decreased by 0.10%, trading around 0.5770. Even with China’s trade surplus hitting $111.68 billion—a 5.9% year-over-year increase in exports—the NZD struggled to hold its ground due to market caution. The US Dollar showed uncertainty as the Federal Reserve prepared for its meeting. There was a 90% chance projected for a 25-basis-point rate cut, amid mixed signals from the economy. This uncertainty limited movement in risk-linked currency pairs. The RBNZ has concluded its easing cycle after a rate cut in November. RBNZ Governor Anna Breman highlighted the bank’s focus on inflation, suggesting it may maintain a steadier monetary policy compared to the Fed. This outlook helped limit the downside for the NZD/USD pair. The future of the NZD/USD depends on comments from Fed Chair Jerome Powell and the latest economic forecasts from the Fed. Today, the New Zealand Dollar was strongest against the Swiss Franc but weakest against the US Dollar. The NZD’s dip to the 0.5770 level appears to be a short-term reaction to cautious market sentiment. The main factor is the growing policy gap between a solid RBNZ and a more dovish Federal Reserve, which may support the currency pair in the coming weeks. The RBNZ’s position is supported by persistent domestic inflation, recorded at 3.5% year-over-year in the third quarter of 2025. This rate is significantly above their target, prompting them to maintain steady rates after their November reduction. In comparison, recent US core PCE data around 2.5% gives the Fed a clear path to start easing soon. Due to uncertainties regarding Jerome Powell’s comments on Wednesday, using options might be a smart strategy. Buying NZD/USD call options with expirations in late January 2026 could capitalize on potential gains if the Fed implies a quicker pace of cuts than expected. This approach helps define our risk while allowing participation in a possible rally spurred by widening interest rate differences. We should remain mindful of the NZD’s sensitivity to global risks, similar to what we observed in 2022 during the global tightening cycle. While recent Chinese export data is strong, ongoing weaknesses in its property sector could still negatively impact market sentiment. Therefore, any long positions should be handled carefully, considering broader market stability.

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GBP/USD is currently around 1.3325, slightly below the 200-day Simple Moving Average of 1.3329. Traders are waiting for the Federal Reserve’s final policy decision this year. Analysts see an 86% chance of a 25-basis-point rate cut, with anticipation of a ‘hawkish cut’ in the Federal Open Market Committee’s language. The UK will soon release its GDP data for October, expecting a 1.4% annual growth and a 0.1% monthly increase. Weakness in the labor market suggests an 87% chance that the Bank of England will lower rates at its December meeting.

Earthquake In Japan

A powerful earthquake measuring 7.6 struck northeastern Japan, leading to a tsunami warning for coastal areas. This event has not impacted GBP/USD, which is showing bullish momentum, though it still needs to close above 1.3350 to test 1.3400. The Pound Sterling, the currency of the UK, is the fourth most traded currency worldwide. Its value is influenced by Bank of England policies, especially interest rate changes, and by economic indicators like GDP, manufacturing output, and trade balance. Positive economic data can strengthen the GBP, making the UK more appealing for foreign investment. Today, December 8th, 2025, GBP/USD is steady around 1.3325, just under the important 200-day moving average. The market is calm as we await major policy announcements from the US Federal Reserve this week and the Bank of England next week. This quiet period likely precedes increased market activity. The Federal Reserve is expected to deliver a “hawkish cut” on Wednesday, a move that might cause fluctuations in the markets. The CME FedWatch Tool indicates a 91% chance of a 25 basis point cut, which usually weakens the dollar. However, if the Fed suggests that this cut is a one-time event rather than the start of a prolonged easing period, the dollar might strengthen after an initial dip.

Bank Of England Pressure

We saw a similar pattern in July 2019, when the Fed cut rates but indicated a “mid-cycle adjustment.” This led to a brief decline in the dollar, which later reversed. This past behavior warns traders to be careful about pursuing the initial move post-announcement. The true direction will depend on updated economic forecasts and the press conference tone. Meanwhile, the Bank of England is facing pressure to cut rates. Recent data from the Office for National Statistics shows the UK’s unemployment rate rising to 4.5% in the three months leading to October, along with slow wage growth. These signs of a weakening labor market lead to an 87% chance of a rate cut in December, likely weighing on the Pound. Given the high risk of upcoming events, strategies that benefit from increased volatility are appealing. The CBOE FX Volatility Index for the GBP is already climbing. Therefore, buying straddles or strangles with strike prices around key levels like 1.3400 and 1.3250 could be a wise way to navigate the upcoming announcements. These strategies would profit if prices move sharply in either direction, helping to manage the uncertainty of central bank guidance. We must also monitor external risks, such as the recent earthquake in Japan. Such incidents often lead to a flight to safety, which typically favors the US Dollar as a safe-haven asset. This could add more downward pressure on GBP/USD, regardless of central bank actions. Create your live VT Markets account and start trading now.

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Gold stays steady near $4,200 as traders proceed with caution ahead of the Federal Reserve’s interest rate decision. The US Dollar remains stable, and Treasury yields are rising, which limits gold’s chances for a significant increase while keeping it within its one-week range. Traders are reluctant to make new moves as XAU/USD is trading around $4,190, following a peak of $4,219. Markets are anticipating the Federal Reserve’s final policy decision for 2025, with expectations of a rate cut that would lower the Federal Funds Rate to 3.50%-3.75%. Recent PCE data and mixed employment indicators suggest a cautious approach to easing monetary policy for 2026. This has helped stabilize the USD and drive Treasury yields higher. Ongoing geopolitical concerns, such as the Russia-Ukraine conflict and regional tensions, also maintain gold’s appeal.

The US Dollar And Treasury Yields

The US Dollar Index (DXY) has recovered slightly, trading around 99.10. Treasury yields are up, with the 10-year yield near 4.186%. PCE inflation remains unchanged, with Core PCE meeting the monthly expectation of 0.2% in September. Labor data shows mixed results: ADP Employment Change fell by 32,000, while Initial Jobless Claims dropped to 191K. According to the CME FedWatch Tool, there’s an 87% chance of a 25 basis points rate cut. Gold ETFs saw inflows of $5.2 billion, raising total assets to $530 billion. Gold is currently holding within the range of $4,200 to $4,180. Support is at $4,201 from the 50-period SMA, and deeper support comes from the 100-period SMA at $4,143. The $4,250 resistance level is crucial for bullish momentum. Gold continues to be viewed as a safe-haven asset, often gaining when the Dollar weakens. Central banks, which are major holders of gold, increased their reserves by 1,136 tonnes in 2022. Gold’s inverse relationship with the Dollar and US Treasuries affects its price movement, supporting diversification in uncertain times.

Market Reactions And Strategies

Gold is currently stuck around the $4,200 mark as the market awaits Wednesday’s Federal Reserve decision. While an 87% chance of a rate cut is priced in, the main focus will be on the Fed’s outlook for further easing in 2026. The recent stalling of PCE inflation at 2.8% suggests that policymakers may be more cautious than expected. This quiet time before the Fed’s announcement provides an opportunity to sell volatility. The Average Directional Index (ADX) is low at 12.7, indicating a weak trend. Strategies such as selling strangles outside the $4,180-$4,250 range could be considered to gather premium, benefiting from stable prices until the Fed’s announcement. If the Fed unexpectedly adopts a hawkish stance, signaling a pause in rate cuts for early 2026, we could see the US Dollar Index return to 100 and the 10-year yield rise above 4.186%. In this case, we would look for a decisive break below the $4,180 support level to trigger further downside positions using put options or bear put spreads. On the other hand, if the Fed presents a dovish message along with the expected rate cut, we might see a breakthrough over the $4,250 resistance. This would be supported by strong underlying demand, as shown by the World Gold Council’s recent report indicating a sixth consecutive month of inflows into Gold ETFs in November. A break above this level would be an opportunity to use call options targeting a retest of all-time highs. It’s also important to note the continued support from global central banks, which has been significant since their record purchases in 2022. This ongoing demand from official institutions creates a solid foundation for the market and explains the consistent dip-buying seen around the $4,180 level, acting as a buffer against any aggressive selling pressure. Create your live VT Markets account and start trading now.

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The USD/CHF hit a one-week high as traders awaited interest rate decisions from the Federal Reserve and the Swiss National Bank (SNB). Markets estimate an 87% chance the Fed will cut rates by 25 basis points this week. The Swiss Franc has weakened against the US Dollar due to market repositioning ahead of these announcements. Currently, USD/CHF is around 0.8072, and the US Dollar Index stands at 99.10 after a recent recovery.

Impact of Federal Funds Rate

If the Fed cuts rates as expected, the Federal Funds Rate could drop to 3.50%–3.75%. Many are looking forward to the Fed Chair’s press conference and the economic outlook, which are likely to influence future policies. Mixed signals from inflation and labor data could cause the Fed to approach rate changes cautiously. Core PCE inflation increased by 0.2% month-over-month in September. Meanwhile, the labor market showed signs of strength with fewer initial claims. The SNB is expected to maintain its rate at 0.00%. With inflation easing to meet the SNB’s target, they are unlikely to lower rates soon. The swaps market indicates less than a 50% chance of a rate cut to -0.25% within the next year.

Market Reactions and Strategies

Looking at the market on December 8, 2025, key events this week include the interest rate decisions from the Federal Reserve and the SNB. The recent rise in USD/CHF shows that traders are positioning themselves ahead of these announcements, leading to significant short-term uncertainty. This situation makes options pricing especially sensitive to upcoming economic news. Although markets have priced in a 25 basis point cut from the Fed, the latest data from the CME FedWatch Tool shows the probability has slightly decreased to 78%. The November jobs report highlighted a moderate addition of 155,000 jobs, and core inflation remains stubborn at 2.9%. This suggests that the Fed’s approach for 2026 may be less aggressive than anticipated, so we must closely monitor their guidance, which may have a greater impact on the market than the actual rate cut. In contrast, the Swiss National Bank is likely to keep its policy rate steady at 0.00%. Recent Swiss inflation was 1.4%, well within the SNB’s target, giving them no reason to change their approach. This consistency from the SNB contrasts with the Fed’s easing policy. This situation, with one central bank cutting rates while another holds steady, often leads to a weaker currency for the cutting bank over time. We observed a similar trend during the Fed’s policy shift in 2024, where initial reactions were volatile until a clearer direction formed. Therefore, the medium-term outlook for USD/CHF appears bearish. Given the uncertainty around the Fed’s statement, strategies that benefit from increased volatility are recommended. A USD/CHF straddle, where you buy both a call and a put option at the same strike price, may be an effective trading approach. This could yield profits if the pair makes a significant move in either direction after the announcements. For those anticipating a decline in the dollar after the Fed meeting, buying put options is preferable to shorting futures. This limits your maximum risk to the option’s premium, offering a cautious way to prepare for a potential drop in USD/CHF while protecting against an unexpected rally if the Fed’s guidance is more hawkish than expected. Create your live VT Markets account and start trading now.

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Pound Sterling (GBP) is trading a bit lower against major currencies, currently around 1.3320 against the US Dollar (USD). This week, with a light economic calendar in the UK, the British currency may be influenced by global events and expectations regarding the Bank of England’s monetary policy. It is expected that the Bank of England will lower interest rates in their upcoming policy meeting due to weak labor conditions and declining inflation. Recent job market data shows an unemployment rate of 5% for the period ending in September. Additionally, the Consumer Price Index (CPI) for October is at 3.6% year-on-year, the lowest it has been in four months. GBP might trade between 1.3290 and 1.3360, with potential long-term growth towards 1.3410. Previously, GBP rose to 1.3385 before falling back, and current trading may remain within a 1.3300 to 1.3365 range. In other financial updates, the Reserve Bank of Australia is likely to keep interest rates at 3.6%. Gold has dipped below $4,200 due to rising yields. Meanwhile, the US Dollar is steady, AUD/USD is stagnant, and USD/JPY is climbing as the Dollar strengthens. With Pound Sterling around 1.3320, the market appears to be holding its breath ahead of next week’s Bank of England meeting. Global events will influence the currency this week, but the main focus is on the expected interest rate cut. This offers a chance for derivative traders to prepare for increased volatility. The expectation for a rate cut is based on recent data showing a cooling UK economy. The Office for National Statistics reported last month that the unemployment rate for the three months ending in October rose to 5.1%, continuing a trend from the previous quarter. With October’s inflation dropping to 3.6%, the Bank of England clearly has a reason to ease policy and support the job market. Given the strong likelihood of a dovish stance from the Bank of England, buying GBP/USD put options is a smart approach in the coming weeks. This strategy allows traders to profit from a possible drop in Sterling after the rate cut announcement while clearly managing their risk. If the Bank surprises by holding rates steady, it could cause a sharp rise in the currency, making the risk defined by options very appealing. This situation is similar to the Bank of England’s dovish shift in late 2024, when the market had fully anticipated a rate cut, resulting in a muted response on the announcement day. The real movement happened before that day, a pattern we may see repeat this week. Traders should be cautious of a “sell the rumor, buy the fact” scenario, where Sterling could strengthen if the Bank’s guidance is less negative than expected. Despite the short-term bearish outlook, some longer-term indicators hint at a potential floor for Sterling. A strategy like a bull call spread with expirations in early 2026 could be useful for positioning towards a rebound to 1.3410, should the rate cut turn out to be a one-time adjustment instead of the beginning of extensive easing. This approach offers a calculated way to benefit from a possible upside move later. The broader market context also supports a stronger US dollar, putting additional pressure on the pound. With the US 10-year Treasury yield steady above 4.5% ahead of the Federal Reserve’s decision, capital continues to favor the dollar, making it harder for GBP/USD to break higher in the near term.

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The Reserve Bank of Australia is likely to announce a move towards stricter monetary policy soon. This aligns with actions taken by other central banks, such as Norges Bank, as they work to tackle inflation. The Australian Dollar (AUD) has been doing well, showing strong inflows with significant net inflows since October. The small number and size of outflows have helped boost its performance, leading to conversations about future changes.

AUD/USD Performance

The AUD/USD pair is doing better than expected, despite typically minor impacts from currency movements in iFlow data. It hasn’t experienced any outflows in two weeks, which has helped maintain strong flow scores in recent months. Data shows there have been significant outflows in AUD. This suggests that some domestic entities may be reducing their forward AUD investments in U.S. markets. The increasing interest rate differences are improving expectations for AUD long positions, as people anticipate possible rate hikes by the RBA. This forex situation is guided by insights from various experts, both commercial and internal, offering strategic observations. With expectations that the Reserve Bank of Australia will tighten policies, we see a shift away from the US Federal Reserve, which seems to be on a long pause. Australia’s latest quarterly inflation report for Q3 2025 showed a stubborn 4.5%, increasing speculation about a rate hike in early 2026. As a result, Overnight Index Swaps now indicate over a 70% chance of a 25 basis point hike by February.

Inflows and Trading Strategies

Since October 2025, we have noticed strong and consistent inflows into the Australian dollar, pushing the AUD/USD pair toward the 0.6850 level. Traders wanting to take advantage of a more hawkish RBA might consider buying AUD/USD call options to benefit from potential gains. This strategy also helps set risk limits if the RBA takes a less aggressive stance than expected, leading to a pullback. The growing interest rate gap between Australia and other major economies is a primary factor driving this trend. This is especially clear in forward markets, where holding long AUD positions against currencies with lower yields is more beneficial. We believe this positive flow will support the Aussie dollar’s strength. Comparing the AUD with other currencies like the Japanese Yen and Euro makes an even stronger case for being long on the AUD, as those central banks remain more dovish. Using derivatives such as AUD/JPY futures or call options may perform well if the RBA stays true to its commitment to combat inflation. This is based on the likelihood of an even larger interest rate gap with those regions. Reflecting on the RBA’s aggressive tightening cycle in 2022 and 2023, we remember that the initial pivot gave the currency sustained momentum. However, given the significant rally over the past two months, much of the positive news may already be reflected in the current price. Therefore, structuring trades with options can be a wise way to manage the risk of a “buy the rumor, sell the fact” situation. Create your live VT Markets account and start trading now.

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The AUD/USD pair is steady at around 0.6640 after a four-day climb to two-month highs. This pause comes as markets tread carefully ahead of the Reserve Bank of Australia’s (RBA) decision on Tuesday and the Federal Reserve’s announcement on Wednesday. The Australian Dollar is holding up well, as traders adjust their expectations and do not foresee further rate cuts from the RBA. The Consumer Price Index (CPI) rose by 3.2% year-on-year in the third quarter, up from 2.1% in the second quarter, indicating ongoing inflation.

RBA Policy Expectations

The RBA is likely to keep its policy rate at 3.6%. Market participants are keen to hear guidance on future monetary policies, with some even predicting a rate hike as early as 2026, fueled by strong household spending that increased by 1.3% in October, compared to 0.3% in September. China’s unexpectedly large trade surplus further supports the AUD, increasing demand as Australia relies heavily on Chinese exports. On the other hand, the US Dollar faces pressure, with an 87% chance of a 25-basis-point rate cut by the Fed. The US Dollar Index is near a five-week low, as Fed officials point to a weakening labor market and slower economic growth. As of December 8, 2025, a clear divide is forming between Australian and US monetary policy, presenting a great opportunity for currency traders. The Aussie dollar is strong, close to two-month highs against the US dollar before central bank meetings this week. This suggests positioning for potential AUD strength against a weakening USD. Market sentiment towards the RBA has shifted significantly, with traders now believing that rate cuts are unlikely for the foreseeable future. Recent data from the Australian Bureau of Statistics shows that the monthly inflation indicator rose to 3.4% in November, increasing pressure on the RBA to take action. Thus, strategies that could benefit from a hawkish RBA, such as buying AUD call options, should be considered.

Fed Expectations and Strategy

Historically, the RBA has acted independently of other central banks. For example, it was among the first to raise rates post-2008 financial crisis, indicating it could pursue its own agenda if domestic inflation stays high. This trend supports a stable or stronger Aussie dollar, even amidst uncertain global growth. Conversely, the US dollar is under pressure as the Federal Reserve is expected to announce rate cuts on Wednesday. The November jobs report revealed that the US economy added only 145,000 jobs, falling short of predictions and confirming a cooling labor market. The market is factoring in an 87% chance of a rate cut, further weighing on the dollar. Given this situation, buying AUD/USD call options set to expire in the coming weeks seems wise. This strategy allows for profit from a potential rise in the currency pair due to policy differences, while limiting potential losses to the premium paid. Risks include unexpected caution from the RBA or signals from the Fed indicating fewer rate cuts for 2026 than anticipated. Support for the Aussie remains strong, driven by its largest trading partner, China. The recently reported trade surplus for China in November was significantly larger than expected, aided by a rebound in exports. This positive news bolsters Australian exports and, in turn, the Australian dollar. Create your live VT Markets account and start trading now.

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The Japanese Yen (JPY) has dropped by 0.2% against the US Dollar (USD), lagging behind other currencies in the G10 group. This decline is linked to rising US interest rates, steady domestic rate expectations, disappointing earnings in Japan, GDP updates, and a shrinking trade balance. The USD/JPY exchange rate has reacted to climbing US yields. These increasing yields may slow down the trend of the Yen strengthening against the widening interest rate difference between the US and Japan. Domestic rate expectations remain stable, with markets predicting 32 basis points of tightening by December and a total of 50 basis points by September.

Recent Economic Trends in Japan

Recent data from Japan shows weak trends, including disappointing real cash earnings and downward revisions to Q3 GDP figures. The trade balance for October also turned out to be less favorable than expected. As of December 8, 2025, the Japanese Yen has weakened significantly against the US Dollar due to increasing interest rate differences. US Treasury yields are climbing back towards their highest levels, with the 10-year yield nearing 4.5%, while the Bank of Japan’s policy rate remains close to 0.25%. This widening gap makes US Dollars more appealing to hold than Yen, putting pressure on the currency pair. The situation in Japan burdens its currency further. The final revision for Q3 GDP revealed a larger-than-expected contraction, while disappointing wage growth indicates weak internal economic activity. This economic weakness gives the Bank of Japan little incentive to raise interest rates aggressively, widening the policy gap with the US Federal Reserve.

Derivative Trading Strategy

For those trading derivatives, the current landscape suggests preparing for a continued rise in the USD/JPY exchange rate in the coming weeks. Buying call options on USD/JPY could be a smart strategy to capture potential gains while managing downside risk on the premium paid. This is especially relevant as the pair approaches significant resistance levels seen during the volatile stretches of 2024. Consider using option spreads, like a bull call spread, to reduce initial costs, although this may also cap potential profits. Historical interventions by Japan’s Ministry of Finance when the pair crossed 155 and 160 in 2024 should be kept in mind, and traders should be alert for signs of official warnings. However, unless a sudden shift occurs, the current economic indicators support further weakness for the Yen. Create your live VT Markets account and start trading now.

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USD/CAD is trading close to its lowest point since late September, following strong job data from Canada. Traders think the Bank of Canada (BoC) will keep interest rates steady on Wednesday, based on recent data. The Canadian Dollar is slightly rising against the US Dollar as the market reacts to different expectations for the BoC and the Federal Reserve (Fed). Currently, USD/CAD is at 1.3807, its lowest since September 22, after a 0.95% drop last Friday. At this week’s policy meeting, the BoC is likely to maintain its interest rate at 2.25%. Economic signals indicate a stable approach is best. Canada’s job market looks strong, with 53,600 new jobs added in November, exceeding predictions. The unemployment rate dropped from 6.9% to 6.5%. Inflation figures are mixed. The Consumer Price Index (CPI) fell to 2.2% year-over-year in October, slightly higher than the 2.1% expected. The GDP grew by 0.6% in the third quarter, recovering from a 0.5% decline in the second quarter. In the US, the Fed is on the verge of an interest rate decision, with an 87% chance of a 25 basis point cut. The Canadian Dollar remains strong due to differing policies as we approach these central bank announcements. As of December 8, 2025, there is a clear distinction between the Bank of Canada and the Federal Reserve. This gap is a major factor behind the recent strength of the Canadian Dollar. Traders should be ready for significant movements around the central bank decisions this Wednesday. The Canadian economy shows resilience, supporting our view that the BoC will keep its rate at 2.25%. The latest data from Statistics Canada indicates 53,600 job additions in November, lowering the unemployment rate to 6.5%. This robust labor market, alongside steady core inflation at 2.9%, gives the BoC little reason to change its policy at this time. On the other hand, the case for a US Federal Reserve rate cut is gaining traction. Recent figures show US Core PCE, which the Fed favors as an inflation measure, has dropped to 2.7% year-over-year, continuing a downward trend seen throughout 2025. Mixed labor data has raised the likelihood of a rate cut this week to about 87%, per the CME FedWatch Tool. For derivative traders, this trend suggests that USD/CAD may continue to drop. Buying put options on USD/CAD can provide a simple way to benefit from downside movement while limiting risk ahead of Wednesday’s decisions. Traders should consider strike prices below the current 1.3800 level, possibly aiming for the lows from the third quarter. With the upcoming events, implied volatility may be higher, offering additional opportunities. For those who think the drop is already reflected in the price, selling out-of-the-money call spreads on USD/CAD could be a good strategy for earning premium. This position is advantageous if the pair decreases, stays the same, or only rises slightly. History can guide us in understanding how these policy differences influence the market. In 2023, the BoC paused its rate increases much earlier than the Fed, showing that policy divergence can be a powerful driver for currency pairs. This can lead to trends that last several months.

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The Pound Sterling is trading slightly down against the US Dollar, stabilizing after a recent budget-driven surge. Investors are looking ahead to important UK data and the Bank of England’s meeting on December 18, which may influence interest rates for 2026. As the North American trading session begins, the pound has dipped a bit from the mid-1.33 range after a strong performance in late November. Traders are on alert as they await the BoE’s December 18 rate decision, which is widely expected to include a 25 basis point cut. However, guidance for 2026 is crucial.

Key UK Data Releases

This week, key UK data releases include industrial production and trade figures coming out on Friday. Markets are anticipating another 25 basis point cut by June, even though officials have indicated potential risks on both sides. The Pound has stabilized against the dollar following its late November rise, but this could be just a short pause before the next big market event. Attention is now focused on the Bank of England’s decision on December 18, making this an interesting time for traders who use derivatives. While most traders expect a quarter-point cut, the real uncertainty is about the Bank’s guidance for 2026. This situation suggests a spike in market volatility may happen around the announcement. Recent data shows that the 1-month implied volatility for GBP/USD has increased to 9.8%, its highest since the third quarter of this year, reflecting that traders are preparing for movement. A more dovish statement from the BoE could push GBP/USD below the 1.3300 mark. Last week’s unexpected 0.4% drop in UK retail sales may give policymakers reason to indicate that more cuts are forthcoming in 2026. This means buying downside protection, like put options set to expire in late December, is a wise move.

Hawkish Surprise Possibility

Conversely, a hawkish surprise is also a possibility, which could cause the Pound to rise sharply. Core inflation remains quite high at 3.1% year-over-year, well above the Bank’s 2% target. Any hint that this will be the last cut for a while would prompt traders to buy upside call options. Historically, the BoE has acted quickly with its forward guidance during economic slowdowns. Policymakers have a track record of surprising the market to stay ahead. Therefore, we should be ready for a significant move rather than just a neutral announcement. Create your live VT Markets account and start trading now.

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