GBP/USD holds firm near 1.3230, consolidating after a series of five straight sessions of increases as the monetary and fiscal discussions in the U.K. and the U.S. compete for influence over market trends. The pair previously reached 1.3273, marking its peak in more than four weeks, before stabilizing in light trading conditions attributed to the U.S. Thanksgiving holiday. Even with signs of momentum fatigue, the overall outlook stays positive, as the pound finds support from anticipations of a Bank of England rate cut in December and the market’s growing belief that the Federal Reserve will take similar action. Chancellor Rachel Reeves’s Autumn Budget delivered a temporary uplift in confidence for sterling. Her fiscal framework increased the U.K.’s fiscal headroom to £22 billion, significantly surpassing the £15 billion forecast. Although this initially stabilized gilt markets and pushed 10-year yields down to approximately 4.01%, the fundamental budget structure indicated persistent long-term issues. Growth forecasts have been revised down to 1.4% for 2026, a decrease from the previous estimate of 1.9%. Additionally, the tax burden is anticipated to reach 38% of GDP, marking the highest level in modern history. The Office for Budget Responsibility has adjusted its inflation forecast, highlighting that the growth in welfare spending is outpacing the increase in real wages. The markets viewed this as a fiscal compromise — increased short-term expenditures balanced by postponed tax increases, resulting in constrained flexibility for policy errors should growth fall short of expectations. Although this bolstered the pound in the short term, the potential for fiscal slippage and delayed revenue increases constrains medium-term optimism.
Market participants are currently assigning a 70% likelihood to a rate cut by the BoE at the meeting on December 19. Overnight index swaps suggest that the policy rate at the end of 2025 could be approximately 4.25%, a decrease from the current rate of 5.25%. Governor Andrew Bailey remarked recently that the disinflation trend is “broadly in line with expectations,” suggesting a possibility for flexibility. The central bank is confronted with a decline in wage growth, as average weekly earnings have decreased to 5.1% year-over-year, marking the lowest point since early 2024. Additionally, retail sales have shown a downturn, falling by 0.4% month-over-month in October. While a reduction in rates may alleviate mortgage pressure and household debt challenges, it could also exacerbate capital outflows if the Federal Reserve postpones its easing cycle. Currently, the strength of sterling indicates expectations of coordinated rate changes between the U.K. and the U.S., rather than a reflection of independent domestic robustness. Conversely, the U.S. Dollar Index has declined to 99.48, marking its lowest level in more than four months. The interplay of subdued macroeconomic indicators and cautious remarks from high-ranking Federal Reserve officials has exerted additional downward pressure on the dollar. Durable goods orders increased by a modest 0.5%, while the Chicago PMI experienced a significant decline to 36.3. Additionally, jobless claims remained steady at 216,000, indicating a downturn in business sentiment and a softening in labor market conditions.
Federal Reserve policymakers, such as John Williams and Christopher Waller, have strengthened the argument for a rate cut in December. Meanwhile, forward rate swaps indicate an 85% likelihood of policy easing at the forthcoming FOMC meeting. With yields on 10-year Treasuries declining to 4.17%, the yield advantage of the greenback diminished, leading to an appreciation of cyclical currencies such as the pound. Technically, GBP/USD has maintained a strong recovery structure since bouncing from its 1.3040 November low. The pair has successfully breached a descending trendline and is currently evaluating resistance at 1.3280, in proximity to the 200-day EMA. A sustained break above 1.3295–1.3350 may indicate the onset of a new medium-term bullish trend, with a target of 1.3470, the swing high from late summer. Momentum indicators continue to show strong levels. The RSI remains above 70, indicating strong bullish dominance while suggesting a potential risk of short-term exhaustion. Support levels are positioned at 1.3215, 1.3160, and 1.3120 — previously identified resistance zones that may now serve as potential demand areas. A daily close below 1.3050 would neutralize bullish momentum and open the door for a retracement toward 1.2960–1.30. Sterling’s movements remain closely aligned with bond spreads and the prevailing risk appetite in the market. The 2-year gilt–Treasury yield differential has expanded to +48 basis points, marking its most favorable position in three months, which bolsters the strength of the pound. Meanwhile, commodity-linked volatility remains low — with WTI crude stable near $58.90 and gold hovering around $4,150 — suggesting markets are not in risk-off mode.
This supports consistent purchasing in high-beta currencies such as GBP, whereas speculative interest in the USD continues to be low. Thanksgiving trading has resulted in reduced volumes, yet there is a significant change in speculative positioning. Data shows that net-long GBP contracts have increased to +13,400, marking the highest level since June, whereas USD longs have decreased by 11% week-over-week. Hedge funds are increasingly shifting away from dollar-heavy carry trades, indicating a belief that the Federal Reserve’s tightening cycle has largely concluded. Nonetheless, uncertainties persist. If December’s U.S. nonfarm payrolls (due December 6) exceed expectations or if inflation begins to rise again, the outlook for the Fed could change quickly, leading to a rebound in the USD that may push GBP/USD back under 1.31. The medium-term perspective suggests a steady progression towards 1.3350, dependent on continued dovish communication from both central banks. However, the rally of sterling may encounter obstacles if macroeconomic data does not validate economic stabilization.
The U.K. faces wage disinflation and stagnant output, which limit real growth potential; meanwhile, in the U.S., labor data and Treasury auctions will determine if the greenback’s weakness persists. In light of this alignment, market participants should anticipate a period of volatility accompanied by directional trading within the range of 1.3150–1.3350 as we approach early December. The prevailing technical and fundamental sentiment continues to lean moderately bullish, with corrections perceived as entry points instead of trend reversals. Although overbought conditions might lead to temporary pauses, the overall framework indicates a sustained upward trajectory. The interplay of BoE adaptability, declining U.S. yields, and enhanced fiscal stability in the U.K. establishes a solid foundation for additional advancements. A decisive break above 1.3350 may confirm trend continuation toward 1.3470, while sustained support above 1.3150 maintains the bullish bias.