The Bank of England signals a rate cut on Thursday, when should market traders act?

**Rate cut is a certainty, market probability exceeds 90%**

On Thursday (December 18), the Bank of England will announce its interest rate decision. The market believes there is over a 90% chance of a 25 basis point rate cut, which would be the fourth rate cut this year and also the lowest level in three years at 3.75%. Analytical institutions expect one more rate cut before the end of April next year, but internal voting may once again split 5-4.

**Economic data supports timing for a rate cut**

Signs of economic weakness in the UK are emerging, with GDP unexpectedly contracting by 0.1% in October, marking two consecutive months of negative growth; the unemployment rate has risen to its highest since early 2021. More importantly, the November CPI rose 3.2% year-over-year, hitting an 8-month low, and core CPI was below expectations at 3.4%, reaching 3.2%. These data dispel market doubts about the Bank of England remaining on hold.

Stimulated by the positive CPI news, GBP/USD plunged over 0.8% to 1.3311 in the short term, hitting a one-week low; the UK 10-year government bond yield fell more than 7 basis points to 4.44%. The policy package introduced by UK Chancellor Rishi Sunak (freezing rail fares, extending fuel tax relief, lowering household energy bills) is expected to further reduce inflation by 0.5 percentage points in the second quarter of next year.

**Fed policy shift influences GBP performance**

Meanwhile, the US November CPI data is about to be released, with market expectations of a 3.1% annual growth rate. Fed Vice Chair Williams signaled a dovish stance, considering tariff-driven inflation as one-off, and focusing more on downside risks to the employment market. US non-farm payrolls added 64,000 jobs in November, higher than the expected 45,000, but October data was sharply revised downward to a decrease of 105,000. The unemployment rate rose to 4.6%, the highest in four years.

The Fed has stopped balance sheet reduction and launched the Reserve Management Purchase (RMP) program, shifting the overall tone toward easing. The market prices in a 2-rate cut possibility next year, with Powell’s term ending next year, reinforcing expectations of a dovish policy.

**Market bets and timing of reversal mechanisms**

It is noteworthy that the scale of short positions on the GBP held by asset management firms has reached a decade high—investors have already priced in the rate cut expectations. Once the Bank of England announces a rate cut and hints that the cycle is nearing its end, it could trigger a very sharp short squeeze, providing strong upward momentum for GBP/USD. This is the key moment when the market might produce a "surprise."

**Technical analysis: two key levels determine the future direction**

The daily chart of GBP/USD shows a clear delineation between bulls and bears. The key level to watch above is 1.3455; a confirmed break above this point could open up upside space. Below, watch 1.3355; a break below this level may reverse the upward trend. The current position is a critical moment of decision between bullish and bearish, and traders should closely monitor the market reaction after the Thursday BoE decision.