The GBP/USD concluded the week at 1.3102, navigating a narrow range from 1.3060 to 1.3155, as market participants assessed the implications of increasing U.K. fiscal credibility in light of evolving U.S. monetary policy expectations. The pair continues to hold above the significant 1.3000 psychological level, which has consistently drawn buying interest since early November. Sterling’s resilience continues to indicate a reassessment of fiscal risks and a recalibration of rate expectations in anticipation of the U.K. Autumn Budget on November 26 and the Bank of England meeting on December 18. The recent market behavior in defending GBP/USD around the 1.3000 level reflects indications of enhanced investor confidence regarding the fiscal outlook in the U.K. Chancellor Rachel Reeves’ updated fiscal framework has alleviated concerns regarding excessive borrowing and has partially reinstated market confidence in the Treasury’s long-term fiscal discipline. Following a tumultuous summer characterized by fiscal concerns that pushed Sterling down to 1.2600, market participants are now anticipating a more consistent trajectory for government expenditure and debt levels. The Office for Budget Responsibility’s forthcoming forecasts are anticipated to indicate a deficit-to-GDP ratio of 4.1%, a decrease from the previous 4.7% projected for 2025.
This fiscal adjustment aligns with a modest recovery in economic indicators. In October, U.K. retail sales experienced a decline, yet the decrease was less severe than anticipated at -0.1% MoM. Concurrently, inflation is on a downward trajectory, currently at 3.8% YoY, marking its lowest point since 2021. The interplay of declining inflation and incremental enhancements in fiscal credibility has sustained the strength of Sterling, counterbalancing lackluster PMI figures and varied industrial performance. Markets are currently reflecting a complete expectation of a 25-basis-point BoE rate cut at the December 18 meeting, with an additional cut anticipated in mid-2026; however, there is not unanimous agreement among Monetary Policy Committee members regarding this trajectory. Recent remarks from hawkish figures like Catherine Mann and Jonathan Haskel underscored that inflation continues to be “persistent in services and wages,” suggesting a reluctance towards a swift easing cycle. Market participants are beginning to doubt the Bank of England’s ability to provide the level of accommodation that is presently anticipated. Should expectations for rate cuts be reduced in December, this may offer further support for GBP/USD, possibly driving the pair towards the 1.3250–1.3300 range.
On the U.S. side, the Dollar Index ended the week slightly lower at 100.22, as markets reacted to conflicting messages from Federal Reserve officials. New York Fed President John Williams indicated there is “room for adjustment” and suggested a possible rate cut during the December 9–10 meeting, in line with dovish remarks from Governor Stephen Miran. Both contributed to an increase in December rate-cut probabilities to 71%, a significant rise from 31% earlier in the week. Nonetheless, the assertive comments from Boston Fed’s Susan Collins and Dallas Fed’s Lorie Logan, both of whom supported sustaining a “restrictive stance for longer,” moderated the response. The economic data from the U.S. presented a varied outlook. The S&P Global Manufacturing PMI decreased to 51.9 in November, down from 52.5, whereas the Services PMI experienced a slight increase to 55.0, indicating a continued divergence between the sectors. Meanwhile, nonfarm payrolls increased by 119,000, surpassing the anticipated 50,000, while the unemployment rate edged up to 4.4%, marking the highest level since 2021. The University of Michigan’s consumer sentiment index rose to 51.0, while inflation expectations decreased, with the one-year outlook at 4.5% and the five-year at 3.4% — strengthening the argument for policy easing in early 2026. These signals diminished the dollar’s capacity to prolong its rally. As market participants have largely factored in the Fed’s policy normalization, GBP/USD maintained its upward momentum with U.S. yields showing signs of stabilization. The 10-year Treasury yield remained around 3.91%, a decrease from 4.12% the prior week, creating further opportunities for Sterling to recover.
From a technical perspective, GBP/USD is currently exhibiting a medium-term consolidation pattern. The pair’s support at 1.3008 is crucial; a daily close beneath this level may lead to renewed downside towards 1.2830, aligning with the 138.2% Fibonacci projection of the 1.3787–1.3140 leg. Nonetheless, consistent recoveries from the 1.3050 level highlight ongoing demand. On the topside, resistance is identified at 1.3247, which corresponds to a previous support level established in early September. A sustained break above 1.3250 would indicate that the corrective move from 1.3787 has likely concluded and suggest a potential recovery toward 1.3380 and 1.3475. The 55-week EMA, presently at 1.3184, serves as a critical pivot point — sustaining weekly closes above this level would bolster the bullish argument. Momentum indicators are indicating neutral to positive signals. The RSI is currently at 52, and the MACD lines are converging, indicating a potential bullish crossover in early December. Volume has decreased by 8% week-over-week, reflecting a cautious approach ahead of the budget, yet it sets the stage for potential volatility expansion as policy clarity comes into view. The overarching dynamics for GBP/USD continue to be influenced by the wider dollar cycle and the long-term fundamentals of the U.K. The low of 1.0351 recorded in 2022 remains a key indicator of the structural bottom following the depreciation wave triggered by Brexit. Following that low point, the rebound to 1.3787 was primarily corrective; however, maintaining a strong position above 1.2760 (trendline support) would uphold the medium-term bullish outlook.
The long-term resistance at 1.4248–1.4480, which aligns with the 38.2% retracement of the decline from 2.1161 to 1.0351, continues to present a significant challenge. A conclusive monthly close beyond that range would signify a structural reversal of the 15-year downtrend. The current trend continues to exhibit corrective characteristics within an overarching bearish super-cycle; however, fiscal stabilization may slowly reduce the performance disparity relative to the dollar. Sterling demonstrates a robust position against the dollar, yet exhibits a weaker stance in comparison to the euro, with EUR/GBP concluding the week around 0.8789. This divergence highlights differing policy expectations: the European Central Bank upholds a “steady stance,” whereas the BoE is poised to implement modest easing. At the same time, the global risk appetite remains a significant factor affecting GBP performance, as equities in Europe and the U.S. demonstrate resilience in the face of tariff and inflation worries. The FTSE 100 concluded the week with a decline of 0.3%, whereas the S&P 500 experienced an increase of 0.5%. This resulted in the GBP/USD correlation with equity risk standing at approximately 0.71, which is considered elevated by historical measures. Market participants currently perceive Sterling as an indicator of risk sentiment, especially given the lack of significant U.K. data leading up to the Budget. Sterling’s capacity to maintain its position above 1.3000, in the face of mixed data, highlights the strength of market confidence. Recent fiscal reforms have alleviated earlier doubts, and the dovish stance from the Fed has limited the strength of the dollar. The upcoming catalysts — the U.K. Autumn Budget and the Bank of England’s December decision — will determine if GBP/USD can maintain its momentum toward the 1.3250–1.3300 range or if it will retreat to the 1.2830–1.2900 correction zone.