GBP/USD begins the week at approximately $1.3165, reflecting the significant impact of the UK government’s fiscal reversal and the subsequent bond-market turmoil triggered by the sudden cancellation of the income-tax increase. Following weeks of indications that taxes were set to increase, the reversal intensified concerns regarding an expanding budget deficit and promptly drove UK yields significantly higher, causing turbulence for sterling and undermining confidence in the integrity of the upcoming November 26 budget. The pair’s difficulty in surpassing $1.3211, despite numerous efforts, illustrates the strong influence of the fiscal narrative on GBP/USD. This situation highlights the reluctance of buyers as the political environment continues to worsen. Weak GDP at 0.1% has intensified the pressure, reinforcing analyst commentary that characterizes the sentiment surrounding UK macro as “souring” with every disappointing print. The technical landscape reflects the prevailing political unease. GBP/USD has consistently approached $1.3146, which represents the 38.2% Fibonacci retracement of the 2025 uptrend. This level has been maintained for three consecutive weeks, indicating that buyers continue to support the zone despite waning confidence. The short-term trendline ascending from early November maintains the pair above $1.3160; however, the resistance established by the 100-period moving average around $1.3175 and the 200-period near $1.3285 curtails any upward movements. The failure of Sterling to achieve a consistent breakout above $1.3211 indicates ongoing selling pressure, whereas the RSI hovering around 52 suggests a stabilization lacking strong conviction. If the pair drops below $1.3133, a decline toward $1.3050 becomes very probable, a level previously encountered when GBP/USD plummeted to $1.3000, with the daily RSI dipping to 23, marking the most oversold condition in over two years.
The policy environment is becoming more challenging for sterling. The current market sentiment indicates an approximately 80% likelihood of a rate cut by the Bank of England in December, reflecting a significant shift influenced by disappointing economic data and increasing concerns over fiscal stability. ING anticipates that the policy rate will decrease to 3.25% by mid-2026, aligning with the current terminal pricing. This scenario will likely lead to a reduction in hedging costs and deposit rates, positioning them in the middle range of the G10 currencies, which will directly impact GBP/USD negatively. Experts caution that the fiscal uncertainty in the UK, coupled with the tenuous credibility of Prime Minister Starmer and Finance Minister Reeves, establishes a scenario in which sterling is likely to experience extended structural weakness, even prior to a complete economic cycle shift. Across the Atlantic, the U.S. Dollar Index is advancing towards $99.40, building momentum following a significant adjustment in Federal Reserve expectations. The likelihood of a rate cut in December decreased significantly from 67% to 46%. This shift was influenced by remarks from Kansas City Fed President Schmid, who emphasized the need for policy to persist in “leaning against demand,” while St. Louis Fed President Musalem cautioned that premature easing could lead to destabilization. Treasury yields stand at 3.60% for the 2-year and 4.14% for the 10-year, further solidifying the dollar’s defensive stance. With Nonfarm Payrolls for September postponed to November 20, the markets find themselves in a state of uncertainty following the U.S. government shutdown, allowing USD buyers to maintain dominance until fresh data recalibrates expectations.
Sterling’s cross-performance provides a more defined understanding of where genuine pressure exists. The GBP/JPY pair has advanced towards 204.00 following a breakthrough at 203.00, with attention now on the yearly high of 205.33 as market participants persist in exerting pressure on the yen. This strength indicates that the weakness of GBP is not widespread — it is mainly focused against the dollar and euro. The EUR/GBP is currently trading near two-month highs, which underscores this trend, as the euro gains from robust regional fundamentals. The inverted hammer rejection at 0.8850 indicates short-term exhaustion; however, the overarching bullish structure remains intact above 0.8750, a level that has transitioned from firm resistance to higher-low support. If EUR/GBP closes firmly above 0.8800, pressure returns toward 0.8850, contributing to a further downward bias for GBP/USD.
When considering all elements — the reversal in tax policy, GDP stagnation at 0.1%, increasing bond yields, political uncertainties surrounding the budget, the 80% probability of a BoE cut, declining hedging premiums, the DXY’s ascent toward $99.40, significant resistance levels at $1.3175 and $1.3211, and the structural disadvantage relative to EUR — GBP/USD is shaping a constricting bearish funnel. Every rally is met with selling pressure. Each data point diminishes confidence. Each policy signal intensifies the downward pressure. The pair is not experiencing a collapse; rather, it is being kept under pressure due to a persistent mix of domestic weaknesses and an adjusting U.S. interest rate landscape.