In general, investors remain cautious ahead of Chancellor Rachel Reeves' Budget 2025 announcement on Wednesday. This budget has attracted significant attention because Reeves has repeatedly pledged over the past year to drive economic growth. Nevertheless, recent economic indicators show that the UK's recovery momentum is slowing. In addition, the economy performed strongly in early 2025, prompting the IMF to predict at one point that the UK would become the second-fastest-growing G7 economy. However, the third-quarter GDP growth plunged to just 0.1%. Aside from one-off factors such as production halts at Jaguar Land Rover due to cyberattacks, business surveys also indicate that concerns about further tax hikes could keep fourth-quarter growth hovering around 0.1%. Fiscal pressures are also notable. In the first seven months of this fiscal year, UK government borrowing reached £84 billion, the highest level for the same period since the pandemic, with day-to-day spending borrowing up 10% year-on-year. This poses a serious challenge to Reeves' goal of achieving a balanced budget by 2030. The labor market is similarly weak. Since the 2024 budget raised employer national insurance contributions and the minimum wage, businesses' willingness to hire has clearly declined. Employment fell by the largest two-month amount since late 2020 between September and October, while the unemployment rate rose to 5.0%. Although the Bank of England believes the impact of tax increases on the labor market has largely played out, real wage growth in Q3, adjusted for inflation, was only 0.5%, reflecting sluggish growth in purchasing power. Consumer confidence has also continued to weaken. Retail sales recorded their first month-on-month decline since May in October, and the consumer confidence index fell further in November. Retailers widely worry that the new budget may further suppress already fragile consumer sentiment. On inflation, although October's rate dropped from previous highs to 3.6%, it remains close to twice the BoE's 2% target. Cost pressures from earlier rises in employer taxes are still feeding through, creating persistent price pressures. Monetary policy outlook remains uncertain. The BoE has cut rates five times since July 2024, but its current 4% base rate is still double the ECB's level. Within the Monetary Policy Committee, there is disagreement over whether to cut again in December, while markets expect two to three more 25-basis-point cuts by the end of 2026. 

Despite recent dovish remarks from Federal Reserve policymakers and growing market expectations for a Fed rate cut in December, the dollar has recovered its daily losses, leaving GBP/USD still subdued. The CME FedWatch tool shows that markets now assign an 81% probability (up from 71% the day before) to a 25-basis-point cut in the federal funds rate at the December meeting. On Monday, Fed Governor Christopher Waller told Fox Business that his main concern was that "inflation is not a big problem with the labor market weak." He also hinted that September's nonfarm payroll data might be revised downward and warned that "no anecdotal evidence that firms are about to go on a hiring spree." All these remarks signal his support for near-term rate cuts.

Regarding the 4H chart, GBP/USD is oscillating around the EMA50, with the MACD line and the signal line pulling back near the zero axis. If they can rise back above the zero axis, the pair is likely to climb toward the resistance zone around 1.320–1.326. RSI stands at 55, indicating a wait-and-see mood, meaning a trend reversal could occur at any time. Based on the daily chart, the price is moving lower along the EMA12 and the Bollinger Middle Bands. In the short term, GBP/USD may return to near the middle band around 1.316. After the MACD line crossed the signal line and formed a golden cross, it is now pulling back toward the zero axis, but still has some distance to go, suggesting the rebound is not yet complete. RSI is at 42, showing lingering pessimism. Overall, the short-term rebound is still valid. Therefore, buying at lows is recommended.

Trading direction: Sell

Entry price: 1.312

Target price: 1.33

Stop loss: 1.31

Support: 1.3/1.29/1.28

Resistance: 1.32/1.33/1.36