Last week, UK Chancellor Rachel Reeves unveiled a new budget centered on tax increases, which became the market's focal point. The budget includes multiple tax adjustments and spending measures aimed at expanding fiscal space and addressing public finance pressures. Moreover, it also sparked widespread discussion about growth prospects and policy feasibility. Tax measures form the main source of additional revenue. The government plans to freeze the income tax personal allowance again for three years starting in 2028, expected to raise £7.6 billion by the 2029/30 fiscal year. An annual supplemental tax on high-value residential properties will be introduced — homes worth over £2 million and £5 million will be taxed at £2,500 and £7,500 respectively, projected to raise over £400 million by 2031. In transport, the fuel duty cut will be extended until September 2026. To offset the revenue shortfall from rising electric vehicle (EV) adoption, an EV mileage tax will be introduced from April 2028: pure EVs will be charged 3 pence per mile, plug-in hybrids 1.5 pence per mile, and is expected to generate £1.4 billion. Additionally, the budget raises dividend tax rates by 2 percentage points, reforms business property taxes, and increases betting and alcohol duties, among other measures, with total new tax revenue exceeding £26 billion. From a medium- to long-term perspective, delayed implementation of tax hikes, weak productivity expectations, and concerns over debt sustainability may continue to exert downward pressure on the pound.

Due to market uncertainty and dovish remarks from Federal Reserve officials, traders have increased bets on Fed rate cuts, pushing the dollar lower and creating headwinds for USD-related pairs. According to the CME FedWatch tool, the implied probability of a 25-basis-point cut at the Fed's December meeting has risen to 87%, up from 71% a week ago. Last week, Fed Governor Christopher Waller said current data show the labor market remains weak enough to warrant another 25-basis-point cut in December. Meanwhile, San Francisco Fed President Mary Daly indicated she supports cutting rates next month, noting that a sudden deterioration in the job market is more likely and harder to control than a surge in inflation.   

Based on the 4-hour chart, GBP/USD is oscillating around the EMA12, with MACD forming a death cross. The signal and MACD lines are moving back toward the zero axis but are still some distance away, indicating the adjustment is not yet complete. If the price breaks below EMA12 and EMA200, it is likely to pull back to near EMA50 at around 1.318. RSI stands at 54, reflecting a wait-and-see sentiment in the market. Regarding the daily chart, the pair is pressured by EMA200 and the Bollinger upper Band. In the short term, it may return to near the Bollinger Middle Band at approximately 1.315. After the MACD golden cross, the MACD and signal lines are retracing toward the zero axis, signaling that a trend reversal could occur at any time. RSI is at 53, still showing market hesitation. Overall, the recent short-term rebound appears to be nearing its end. Therefore, it is better to sell at highs.

Trading direction: Sell

Entry price: 1.322

Target price: 1.29

Stop loss: 1.34

Support: 1.3/ 1.29/ 1.28

Resistance: 1.326/ 1.33/ 1.34