Key Takeaways
- The British Pound (GBP) is experiencing weakness against major currencies, with the exception of antipodean currencies.
- Concerns over potential tax increases in the upcoming UK Autumn Budget are contributing to the selling pressure on the Pound.
- Investors are closely watching the Bank of England’s monetary policy announcement this week, with divided opinions on potential interest rate cuts.
- The Pound Sterling has declined against the US Dollar, trading below the crucial 1.3100 level.
- Federal Reserve commentary has shifted market expectations regarding future interest rate cuts, impacting the US Dollar’s strength.
Pound Sterling Faces Pressure Amid Budget Uncertainty
The Pound Sterling (GBP) is underperforming its major currency peers, except for those from Australia and New Zealand, this Tuesday. Investors are adopting a cautious stance, anticipating that the UK Chancellor of the Exchequer, Rachel Reeves, might implement tax hikes in the forthcoming Autumn Budget later this month. This potential action is aimed at addressing a significant £22 billion shortfall in the government’s finances. Reports indicate that Reeves is examining over 100 options for tax and spending adjustments, with a particular focus on higher earners.
Key Economic Events to Watch
This week, market participants will be closely monitoring the Bank of England’s (BoE) monetary policy announcement scheduled for Thursday. There is considerable division among financial market players regarding the likelihood of the BoE cutting interest rates at its next meeting. In its September policy meeting, the BoE opted to keep interest rates unchanged at 4%, citing persistent inflationary pressures. However, the central bank expressed optimism that inflation would likely peak around 4% in September.
💡 The UK Chancellor, Rachel Reeves, recently cautioned that inflation has been too slow to come down, thereby exposing the UK economy to rising cost of borrowing. She emphasized that her budget decisions in the upcoming Autumn Statement will prioritize lowering inflation.
GBP/USD Dives Amid Shifting Fed Rate Cut Speculation
The Pound Sterling has slumped to near 1.3070 against the US Dollar (USD) during the European trading session on Tuesday. The GBP/USD pair is weakening as the US Dollar strengthens, driven by receding expectations that the Federal Reserve (Fed) might cut interest rates again this year. At the time of reporting, the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, has seen a slight dip to around 99.85, after reaching a fresh three-month high near 100.00 earlier in the day.
Data from the CME FedWatch tool reveals a significant decrease in the probability of the Fed implementing a 25 basis point (bps) interest rate cut in December, falling to 67.3% from 94.4% observed last week. This shift in expectations follows comments from Fed Chairman Jerome Powell, who stated that a December rate cut is far from a foregone conclusion due to differing views among policymakers and that no decision has been made yet.
💡 San Francisco Fed President Mary Daly indicated that the December monetary policy decision would be data-dependent, adding that monetary policy needs to remain modestly restrictive given that inflation remains significantly above the Fed’s 2% target.
Moving forward, market attention will be on the US ADP Employment Change data for October, due for release on Wednesday. This report is particularly important as the Nonfarm Payrolls (NFP) data will not be available due to the US federal government shutdown. Economists predict that US private employers added approximately 24,000 jobs in October, a contrast to the 32,000 layoffs reported in September. An improvement in the US job market could further diminish expectations for additional Fed rate cuts this year.
Technical Outlook for GBP/USD
The Pound Sterling continues its downward trend, now trading below the 1.3100 mark against the US Dollar during Tuesday’s European session. The outlook for the GBP/USD pair, often referred to as ‘cable’, remains bearish. Key technical indicators suggest this trend, with the pair trading below the 200-day Exponential Moving Average (EMA), which is currently situated around 1.3279.
Furthermore, the 14-day Relative Strength Index (RSI) has fallen below the 30.00 level, signaling a bearish momentum in the overall trend.
On the downside, the psychological support level at 1.3000 is expected to be a key area of interest for traders. Conversely, resistance is anticipated around the October 28 high of approximately 1.3370.
Bank of England Interest Rate Decision Overview
The Bank of England (BoE) announces its interest rate decisions following eight scheduled meetings annually. A hawkish stance from the BoE concerning the economic outlook and an interest rate hike are typically supportive of the Pound Sterling (GBP). Conversely, a dovish approach, involving maintaining current rates or enacting a cut, is generally viewed as bearish for GBP.
Next release: Thu Nov 06, 2025, 12:00 GMT
Frequency: Irregular
Consensus: 4%
Previous: 4%
Source: Bank of England
Expert Summary
The Pound Sterling is experiencing a downturn due to anticipated tax increases in the UK’s upcoming budget and shifting global interest rate dynamics. With the Bank of England’s policy decision on the horizon, market participants are closely observing economic indicators for further clues on currency movements.