GBP/USD Price Forecast - Pound Surges To 1.3365; UK Economic Data Surprise To Upside

GBP/USD Climbs Toward 1.3365 As Fed Rate Cut Bets Erode Dollar Strength

The GBP/USD pair rallied strongly through early European trading, climbing to 1.3365, as the market priced in an almost certain 25 bps rate cut by the U.S. Federal Reserve. Traders now see a 97% probability that the Fed will lower its key rate to 3.75%–4.00%, following softer U.S. CPI data showing 3.1% YoY inflation, down from 4.0% in late 2024. This policy pivot, combined with improved UK economic data, marks a sharp sentiment reversal after six consecutive sessions of weakness that pushed the pair near 1.3300. The pound’s rebound reflects renewed investor appetite for risk assets as the dollar’s multi-year bull run begins to fade.

Fed Policy Expectations Drive Dollar Weakness Across Majors

The U.S. dollar has been under persistent pressure since last Friday’s inflation release, with investors convinced that the Federal Reserve’s second consecutive rate cut will materialize this week. The CPI’s 3.1% reading, alongside signs of cooling wage growth, grants the Fed enough flexibility to ease further after its September reduction. Derivatives traders report a sharp uptick in GBP/USD option activity, particularly in short-dated call contracts, suggesting that the market is bracing for an upside breakout if the Fed’s tone turns more dovish or signals a third cut in December 2025. This dynamic has pushed the Dollar Index (DXY) below 105.60, its weakest level in a month.

Stronger UK Retail Sales And PMI Data Reinforce Sterling Momentum

Sterling’s advance is supported by UK Retail Sales rising 0.6% in September, while the flash Composite PMI climbed to 51.5, signaling steady expansion. The services sector — responsible for over 70% of UK GDP — continues to show resilience, softening expectations for a Bank of England rate cut in November. However, with inflation easing to 2.8%, the BoE faces a delicate balancing act. Traders see a 60% probability of a BoE cut by December, but this has not deterred short-term buying of the pound as investors capitalize on a more immediate Fed-driven dollar weakness.

Technical Landscape: 1.3330 Support Holds As Bulls Target 1.3400

Technically, GBP/USD has established a base at 1.3330, with the 50-period MA at 1.3360 and 100-period MA at 1.3380 acting as near-term resistance. A breakout above 1.3380–1.3400 would expose the next barrier near 1.3460, aligning with the 200-period MA, where selling pressure has previously capped gains. The RSI at 54 indicates modest bullish momentum, while implied volatility remains contained, offering an opportunity for leveraged traders to position for post-Fed movement through long straddles or short-dated calls. Below 1.3330, immediate support rests at 1.3300, followed by 1.3250, levels not consistently seen since early 2022.

US–China Trade Thaw Adds Risk-On Tailwind To Sterling

Optimism over a potential U.S.–China trade truce has lifted market sentiment globally. Presidents Donald Trump and Xi Jinping are scheduled to meet in South Korea this week, with expectations of renewed cooperation on rare-earth supply chains and technology tariffs. The news has boosted high-beta currencies like the pound, which tend to perform well during risk-on periods. The easing of geopolitical friction has already supported copper prices at $11,094/mt and other cyclical assets, signaling broader investor confidence that also spills into the FX market.

BoE’s November Meeting And UK Autumn Budget Pose Event Risk

Despite near-term strength, the Bank of England’s November 6 meeting and the UK Autumn Budget on November 26 represent significant event risks. Policymakers remain divided: some advocate preemptive easing to cushion fiscal tightening, while others prefer to delay until inflation stabilizes near the 2% target. The CBI Retail Sales Index, improving to -27 in October from -29, shows fragile retail sentiment, while November expectations deteriorated to -39, underscoring weak domestic confidence. These data points will influence BoE Governor Andrew Bailey’s next move, as fiscal coordination between monetary and government policy remains critical for sterling’s trajectory.

Derivative And Options Positioning Reflect Dual-Sided Play

Implied volatility in GBP/USD remains subdued relative to historical levels, with 1-week options pricing in a 0.45% move post-Fed. Traders are favoring buying near-term calls to capitalize on immediate post-decision momentum while selling late-November expiries, anticipating consolidation after the BoE and budget events. The structure suggests a market expecting short-term upside followed by medium-term stabilization near 1.3350–1.3400.

Macro Divergence: Fed Dovish Pivot Versus BoE’s Wait-And-See Stance

The monetary divergence between the Federal Reserve’s easing bias and the BoE’s cautious restraint underpins the current rally. U.S. Treasury yields have dropped, with the 10-year at 3.74%, its lowest since July, while UK gilts remain steady around 4.05%. The widening rate differential has narrowed sharply, favoring the pound. However, UK fiscal headwinds — including budget tightening and slower public spending — could cap gains if economic growth softens into Q4.

Trading Strategy And Outlook

Market positioning leans bullish in the short term. With GBP/USD trading at 1.3365, momentum indicators suggest potential upside toward 1.3400–1.3460, contingent on dovish Fed rhetoric. Conversely, a hawkish surprise or weak UK budget expectations could trigger a swift reversal toward 1.3250. For professional traders, long call spreads remain favorable to capture the 1.3400 breakout, while macro-focused investors may eye December’s dual Fed-BoE policy window for structural entries.

Buy, Sell, Or Hold Verdict

Based on macro divergence, improving UK data, and expected Fed rate cuts, the bias for GBP/USD is BULLISH (BUY) in the near term. Sustained strength above 1.3380 confirms upside continuation toward 1.3460, with extended potential to 1.3550 if risk appetite persists. However, traders should monitor the November 26 budget, as fiscal tightening could later dampen momentum.

Final Outlook: BUY (Short-Term), HOLD (Medium-Term) — GBP/USD likely advances to 1.3400–1.3460, fueled by dovish Fed action and firm UK macro data before consolidating into late November.

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