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US Fiscal Tailwind: GBPUSD Set to Spike?
Forex
Technical Analysis
Summary:
The Bank of England (BoE) left rates at 4.0% last week, citing caution ahead of the U.K. Autumn Budget due in November. Governor Andrew Bailey hinted that a cut is imminent, and economists are now pricing in a pre-Christmas reduction.
Buy
TradingGBPUSD
EXP
1.31778
Entry Price
1.33000
TP
1.30000
SL
1.31628 +0.00126 +0.10%
0
Point
Flat
1.30000
SL
CLOSING
1.31778
Entry Price
1.33000
TP
Fundamentals
The BoE last week voted to keep Bank Rate at 4.0%, judging it "prudent" to wait until the government's Autumn Budget in November. Governor Andrew Bailey signalled that a cut is now in view, and economists have priced in a reduction before Christmas. The MPC repeated, however, that any future easing “will depend on how the inflation outlook evolves.”
Speaking on 4 November, Chancellor Rachel Reeves said the legacy of Covid-era debt, chronically weak productivity and stubborn inflation leave the Treasury "no choice but to act" to stabilise the public finances. She confirmed that her second fiscal statement will include tax-raising measures to protect public services and avoid a return to "austerity."
Although Reeves campaigned on a pledge not to increase the main tax heads, investors read her remarks as paving the way for adjustments that would rebuild fiscal head-room and shore up market confidence. The government's formal target remains to balance the current budget (excluding investment spending) by 2029-2030 and to put debt on a declining path.
Strategists broadly interpret Reeves' speech as laying the groundwork for forthcoming tax rises while guiding market expectations. Jane Foley, Head of FX Strategy at Rabobank, notes that her repeated emphasis on coordination with the BoE to quell inflation signals an unwillingness to unveil any fiscal loosening that could add fresh price pressures. Kit Juckes, Global Head of FX Strategy at Société Générale, argues the Budget is in essence "engineered for lower rates", yet that narrative has failed to spare sterling short-term softness. Henry Cook, economist at MUFG, adds that although Reeves has sent a disciplined message on fiscal rules and inflation control, the granular policy blueprint will be the ultimate arbiter of market confidence.
With the 2022 "mini-Budget" turmoil still etched in investors' memories, the market is now scrutinising whether she can deliver a credible fiscal path that respects her self-imposed fiscal mandate while preserving adequate headroom against future shocks, thereby stabilising sentiment and compressing the sovereign risk premium.
Bloomberg reported earlier that the U.S. government shutdown is poised to end after a group of centrist Senate Democrats agreed to back a deal that would reopen the government and fund some departments and agencies through next year. Under the agreement, federal employees would receive back pay and states would resume previously delayed federal grants, sources said. The measure would finance part of the government until 30 January, while other agencies would receive full-year appropriations. The prospective end to the shutdown is likely to lend the dollar near-term support and weigh on major currency pairs.
Separately, renewed concerns over the U.S. labour market have nudged investor expectations slightly higher, reinforcing bets on additional Fed easing this year. According to CME's FedWatch tool, the market now prices a roughly 66% probability of a 25 bp rate cut at the December FOMC meeting.
Technical Analysis
On the hourly chart, GBPUSD is grinding higher along the EMA200. The MACD fast-slow line is making its second pull-back toward zero. Another bullish cross would open a straight run to the psychological 1.32 threshold. RSI 58 shows optimism creeping back, tilting the bias from down to up.
On the 4-hour chart, price has just regained the EMA50 and is now targeting the EMA200 around 1.329. After the MACD bullish cross the histogram has pushed above zero, putting momentum back in bull territory. RSI 59 confirms strong bullish sentiment.
Therefore, the short-term bounce is intact. Traders are recommended to take long positions at lows.
Trading Recommendations
Trading Direction: Buy
Entry Price: 1.316
Target Price: 1.33
Stop Loss: 1.3
Support: 1.3/1.29/1.28
Resistance: 1.32/1.33/1.36
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