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£10 bn Budget: Further GBPUSD Rally?
Forex
Economic
Summary:
UK Chancellor Rachel Reeves is set to unveil multi-billion-pound tax hikes. The package will test her credibility with gilt investors and welfare-expansion MPs. A fiscally disciplined stance could reinforce long-term confidence in UK assets and lend modest support to sterling.
Sell
CLOSEDGBPUSD
End Time
1.32400
Entry Price
1.29000
TP
1.34000
SL
1.32189 -0.00200 -0.15%
116
Points
Profit
1.29000
TP
1.32284
CLOSING
1.32400
Entry Price
1.34000
SL
Fundamentals
Sterling's latest leg higher has been driven chiefly by broad-based USD weakness. The USD pressure stems from weaker-than-expected U.S. data and recent dovish signals from Fed officials. Focus now turns to Chancellor Rachel Reeves' forthcoming Budget. Against a challenging fiscal backdrop, the Treasury is expected to unveil tax-raising measures worth tens of billions of pounds to plug the deficit and bolster the UK's fiscal buffer.
Despite pre-election pledges by Chancellor Reeves and PM Starmer to shield "working people" from higher taxes, the Treasury is now set to widen the tax base in response to deteriorating public-financed metrics. The flagship measure is a two-year extension—to FY-2029/30—of the freeze in both the personal allowance and the higher-rate threshold for income tax, a fiscal drag that is projected to yield about £8 bn per annum in additional receipts.
Option markets are on high alert. Overnight GBP-implied volatility exploded to nealy 12% on Tuesday from < 2% at the start of the week, signalling aggressive hedging against outsized GBP moves once the Budget is released.
October CPI dropped to 3.6% YoY, reinforcing dovish pricing in the short-sterling strip. A 25 bp Bank Rate cut in December is now fully discounted at an 80% probability, pushing 10-y Gilt yields lower ahead of the fiscal event.
U.S. data released also warrant attention. The jointly-issued September figures from the Commerce Department and the Department of Labor showed a modest growth profile: headline retail sales rose only 0.2% MoM, missing the 0.4% consensus and decelerating sharply from August's revised 0.6%. At the same time the producer price index increased 0.3% MoM, in line with expectations, but the annual rate stayed unchanged at 2.7% for a second straight month. Both releases were postponed because of the 43-day federal government shutdown.
In response to the data, market analysts flagged their lagging nature as diluting any immediate market punch.
"Inflation dynamics have shifted more dramatically than consumer spending; the price-level adjustment to the new-tariff reality is probably in its late stages," said Brian Jacobsen, chief economist at Annex Wealth Management.
Peter Cardillo, chief market economist at Spartan Capital Securities, emphasized that core PPI printed below consensus and remains sub-3% YoY, evidence that inflation is not re-accelerating—conditions he views as green-lighting a December Fed rate cut.
He added that the economy is exhibiting a pronounced K-shaped profile: high-income cohorts continue to prop up consumption, while middle- and lower-income segments are already showing fatigue.
Recent dovish remarks from within the Fed have further cemented market expectations of an imminent rate cut. New York Fed President John Williams stated that the policy rate could decline "in the near term," while San Francisco Fed President Mary Daly and Governor Christopher Waller have both voiced support for a December reduction. According to the CME FedWatch Tool, the implied probability of a 25 bp rate cut at the December FOMC meeting has surged to 84.9%, up from just 50.1% a week ago, underscoring the accelerating convergence toward a monetary-policy pivot.
Technical Analysis
Weekly Technical Outlook: GBPUSD is consolidating around the EMA50. The MACD fast/slow lines have pulled back to the zero-axis. A renewed bullish crossover (golden-cross) would expose the EMA12 at 1.324 and the Bollinger mid-band at 1.340. RSI sits at 45, signalling prevailing pessimism.
Daily Technical Outlook: Price has cleared both the EMA12 and the Bollinger mid-band. The immediate bias points toward the EMA200 near 1.3246. MACD remains in a golden-cross formation while still pulling back toward the zero-line, implying the rebound is incomplete. RSI at 51 reflects a wait-and-see mood. Overall, the short-term rally is intact.
Therefore, the short-term strategy is recommended to go long first, then short.
Trade Recommendations
Trade Direction: Sell
Entry Price: 1.324
Target Price: 1.29
Stop Loss: 1.34
Support: 1.3/1.29/1.28
Resistance Levels: 1.324/1.33/1.34
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