The GBP/USD pair remains positioned around 1.3075, consistently bouncing back from declines beneath the 1.30 mark, even in the face of ongoing challenges in fiscal and macroeconomic indicators. During the previous week, the pair fluctuated within the range of 1.3060 to 1.3155, indicating limited liquidity and a prudent outlook in anticipation of the UK Autumn Budget scheduled for November 26. The British pound is currently limited by worries regarding stagnant growth, persistent inflation, and increasing government borrowing, whereas the U.S. dollar maintains its strength due to higher yields and robust consumption data. The market is currently centered on the Bank of England’s policy meeting scheduled for December 18, with traders anticipating a 25-basis-point rate cut, and another expected by mid-2026. Recent comments from MPC members indicate a reluctance to ease prematurely, considering inflation remains above 3.9%, significantly exceeding the target. Recent Treasury data indicates that the UK government’s borrowing requirement decreased to £17.4 billion in October, which is lower than the previous year’s £19.2 billion. However, it remains £2.2 billion above market expectations. For the fiscal year to date, borrowing amounts to £116.8 billion, which is almost £10 billion higher than the projections made by the Office for National Statistics. There are concerns in the markets that Chancellor Rachel Reeves may have constrained fiscal capacity to promote growth without disturbing gilt markets. The widening disparity between government expenditure and tax income is increasingly steepening the gilt yield curve — with 10-year gilts yielding 4.24%, an increase from 3.82% just a month prior — a development that constrains domestic financial conditions and limits the potential appreciation of Sterling.
In October, UK retail sales volumes experienced a decline of 1.1%, marking the most significant drop since March, in contrast to consensus expectations of only a 0.1% decrease. Excluding gasoline, the decline was 1.0%, indicating that genuine consumer activity is diminishing due to elevated borrowing costs. Annual growth decelerated to 0.2%, highlighting the diminished purchasing power of households. The composite PMI index decreased to 50.5 from 52.3, reaching a seven-month low. The services PMI declined relative to forecasts, whereas manufacturing experienced a modest increase to 50.1, marking its first expansion in more than a year. Nonetheless, the deceleration in output charges — currently at a five-year low — indicates that disinfllationary momentum is in progress. In light of the negative trends in UK data, the strength of Sterling can be attributed to the dynamics of risk sentiment. Global equities experienced a decline last week — the S&P 500 saw a reversal of gains following Nvidia’s pullback, which prompted a shift into bonds, while Bitcoin fell by 7% to reach a seven-month low. However, the pound stayed positioned close to 1.31, reflecting a demand for short-covering. Nonetheless, the U.S. dollar index, positioned close to a six-month peak at 106.2, persists in constraining upward movement. The Federal Reserve’s hawkish FOMC minutes confirmed a slower disinflation trajectory, and the upcoming Core PCE data is anticipated to be at 2.8% YoY, sustaining strong dollar demand.
The forthcoming Autumn Budget may serve as a crucial determinant for GBP/USD in this quarter. Experts project a fiscal “black hole” of approximately £20 billion, which is less than the initial estimates of £30 billion, but still significant enough to limit the government’s spending flexibility. The Office for Budget Responsibility has revised its productivity growth forecasts downward once more, anticipating GDP growth to fall below 0.9% by 2026. Reeves is under significant pressure to either generate £6 billion via tax reforms or reduce welfare and pension expenditures — both options carry political risks that could impact Sterling sentiment. The GBP/USD technical configuration exhibits a slight bullish trend above 1.30, with long-term support consistently maintaining its position. The 50-day moving average is positioned at 1.3038, with resistance limiting the pair around 1.3155. Momentum indicators indicate an RSI reading of 54, implying a slight upside momentum; however, a breakout is unlikely unless fiscal guidance reinstates investor confidence. Short-term traders are observing 1.3120 as intraday resistance, with the subsequent target positioned at 1.3225, aligning with September highs. A consistent close beneath 1.2980 would pave the way for a move toward 1.2850, thereby reaffirming a bearish trend channel.
As GBP/USD remains in a consolidation phase, the EUR/GBP pair is currently at 0.8789, reflecting a decline of 0.30% for the week, influenced by easing inflation in the eurozone and stagnant growth conditions. Against the Japanese yen, Sterling increased to 188.12, bolstered by anticipations of extended dovish policies from the BOJ. The GBP/NZD pair increased by 0.5% to 2.1050 as market participants anticipate the RBNZ’s rate decision. The current forward markets indicate a 60% likelihood of a Bank of England rate cut occurring in December, followed by an additional cut by June 2026. The SONIA curve has experienced a significant flattening, indicating a terminal rate of 4.50%, a decrease from the current 5.25%. Currently, U.S. 2-year Treasury yields are hovering around 4.89%, resulting in a significantly negative transatlantic yield spread of -139 basis points, which inherently supports the USD. Nonetheless, the extent of “bad news” factored into Sterling is considerable. Much of the fiscal drag, political uncertainty, and expectations for rate cuts are already factored in, potentially leading to asymmetrical upside risk if the UK budget demonstrates credible fiscal restraint. The risk assessment for GBP/USD appears cautiously optimistic, provided that the 1.30 support remains intact and the UK Budget does not present any significant fiscal surprises. Market conviction remains thin; however, technical stability, rate cut repricing, and reduced dollar momentum may sustain the pair’s trading within the 1.3050–1.3200 range in the near term.