Boosted by Chancellor of the Exchequer Rachel Reeves' budget announcement, GBP/USD rose to its highest level since late October. The budget expands the government's available fiscal space over five years to nearly £22 billion through tax increases, far exceeding market expectations and significantly easing investors' concerns about the UK's long-term fiscal position. The bond market responded positively: the yield on 30-year UK gilts fell 11 basis points to 5.215%, marking the largest single-day drop since mid-April. GBP/USD gained 1.325% over the week, its best performance since August. Rory McPherson, Chief Investment Officer at Wren Sterling, noted: "It could have been a lot worse and that's what the market was fearing. Looking at the key market indicators, it has been taken positively." Institutional investors quickly adjusted their positions. Nomura closed its long EUR/GBP position, while Mizuho Securities turned bullish on UK gilts relative to U.S. Treasuries. JPMorgan CEO Jamie Dimon praised the budget's pro-growth measures. However, some analysts, including Kallum Pickering, Chief Economist at Peel Hunt, cautioned that fiscal measures are concentrated in the latter half of the budget period and rely on potentially overly optimistic forecasts; the UK's long-term fiscal sustainability still needs monitoring. 

A continued weakening of the U.S. dollar further supported the pound's rise. The U.S. Dollar Index fell 0.54% this week, its largest weekly decline since July. Market expectations for Fed rate cuts have intensified, with traders now pricing an 85% probability of a December cut, up sharply from 30% a week ago. Recent policy signals from several Fed officials, combined with pressure from President Trump to cut rates, have exacerbated USD weakness. Although economic data resumed after the end of the U.S. government shutdown, much of it is outdated, leaving investors more reliant on Fed policy cues. George Boubouras of K2 Asset Management noted that although core inflation remains above target, labor-market softness has become the central consideration for policy. However, the 10-year breakeven inflation rate stays around 2.25%, indicating stable long-term inflation expectations. UBS Global Wealth Management advised clients to shift into euros and Australian dollars and away from the U.S. dollar. Markets expect the Fed to cut rates by more than 90 basis points cumulatively by the end of next year. Barclays Global FX Strategy Head Themistoklis Fiotakis noted that interest rate differentials and growth expectations are more favorable for Europe. Moreover, if White House rate-cut advocate Kevin Hassett is nominated as the next Fed Chair, it could further pressure the U.S. dollar.

Based on the 4-hour chart, GBP/USD is oscillating around the EMA12. MACD forms a death cross, and a large bearish candle appears, signaling the start of a pullback. If price breaks below EMA12, it will likely retrace toward the Bollinger Middle Band and EMA50, at approximately 1.318 and 1.316, respectively. RSI stands at 61, reflecting optimism in the market. Regarding the daily chart, the price is pressured by EMA200 and the Bollinger Upper Band. In the near term, it may return to the Bollinger Middle Band near 1.315. After the MACD and signal lines formed a golden cross, they pulled back near the zero axis, suggesting an imminent trend reversal. RSI is at 55, indicating the market remains in a wait-and-see mode. Overall, the short-term rally appears to be nearing its end. Therefore, it is better to sell at highs.

Trading direction: Sell

Entry price: 1.323

Target price: 1.29

Stop loss: 1.34

Support: 1.3/ 1.29/ 1.28

Resistance: 1.326/ 1.33/ 1.34