GBP/USD Price Forecast - Pound Steadies at 1.3088 as UK Budget Looms and BoE Cut Bets Rise to 70%

GBP/USD Hovers Near 1.3100 as Traders Brace for UK Budget and Fed Cut Bets Intensify

The GBP/USD pair trades around 1.3088, maintaining a fragile tone as markets balance expectations of a Bank of England (BoE) rate cut with renewed Federal Reserve (Fed) dovish bets. The move comes in a week dominated by the UK Autumn Budget and a packed U.S. economic calendar before the Fed enters its blackout period. Despite intraday rebounds, sterling lacks momentum, with technicals signaling that the pair remains vulnerable to renewed selling pressure below 1.3100.

Sterling Stagnates Ahead of UK Budget as Fiscal Pressure Mounts

The British pound has traded indecisively since late last week, trapped between 1.3065 and 1.3125, as investors await fiscal policy details from Chancellor Rachel Reeves. Reports from the Office for Budget Responsibility (OBR) indicate slower growth across every parliamentary year, projecting GDP expansion to fall below 1.2% in 2026. The expected £20–30 billion public finance gap leaves limited room for fiscal stimulus, forcing potential tax hikes that risk dampening household consumption and corporate investment.

The October retail sales contraction of –1.1% and weaker PMI readings—with the services index at 49.4, its lowest in seven months—underscore stagnation in the UK’s dominant sector. Sterling’s muted response reflects skepticism that the upcoming budget can offset the economic drag. Traders remain cautious that Reeves’ measures could fail to stabilize gilt markets or deliver meaningful growth incentives.

BoE Rate Cut Probability Climbs to 70% as Inflation Eases

Markets now assign a 70% probability of a 25-basis-point BoE rate cut in December, driven by cooling inflation and weakening wage momentum. The latest CPI reading slowed to 3.8% y/y, from 4.3%, marking the fifth straight decline. Core inflation eased to 4.5%, confirming policy space for an early pivot.

Governor Andrew Bailey’s recent remarks emphasizing “tighter conditions through alternative channels” further fueled rate-cut expectations. The pound’s inability to hold above 1.3120 despite a softer dollar shows that easing speculation is now a dominant market anchor.

Fed Policy Shift and DXY Stability Weigh on Cable

Across the Atlantic, the U.S. Dollar Index (DXY) remains steady near 100.21, consolidating after a five-day rally. Fed Governor Christopher Waller backed a December rate cut, echoing dovish comments from John Williams, but uncertainty lingers over January. Rate futures imply a 69% chance of a December cut, with traders closely watching Producer Price Index (PPI) and Durable Goods Orders data for confirmation.

Even as the DXY’s short-term momentum cools, the dollar’s structural resilience limits GBP/USD upside. The Greenback benefits from risk aversion and relative yield advantage, keeping the pair within a narrow corridor despite temporary USD softness.

Technical Breakdown: Sellers Guard 1.3125 While Buyers Defend 1.3030

Technically, GBP/USD remains capped under the 200-day SMA at 1.3160, confirming a fragile bullish attempt. The Relative Strength Index (RSI) near 45 reflects stabilization without momentum. Resistance sits at 1.3120–1.3160, followed by the 1.3200 psychological mark. A decisive break above 1.3250 could trigger a short-covering rally toward 1.3300, aligning with the 200-day moving average.

On the downside, immediate support rests at 1.3040–1.3035, the lowest range since early November. A daily close below 1.3000 would reopen 1.2950 and potentially extend losses toward 1.2870—a level last tested in April. The technical bias remains bearish until the pair secures multiple daily closes above 1.3155.

Market Positioning and Sentiment: Pound Lags G10 Peers

Month-to-date, GBP is down 0.50% versus USD and 0.15% versus EUR, outperforming only the NZD (–1.98%) and AUD (–1.05%). The JPY remains the weakest G10 currency, down 1.33% against GBP, as intervention fears limit volatility. The pound’s subdued movement shows investors are not betting on aggressive BoE easing but remain unconvinced by the UK’s growth trajectory.

The CFTC’s latest Commitment of Traders report reveals net-long GBP futures shrinking by 4,800 contracts, signaling reduced bullish conviction.

Macro Correlations: Equities, Oil, and Fiscal Anxiety Intersect

Broader macro correlations add complexity. The FTSE 100 rebounded from 9,423 to 9,600, offering mild GBP support via equity inflows, while WTI crude oil holds near $58.46, easing energy import costs. However, the UK’s twin deficit problem—fiscal and current account—remains a structural drag.

The IMF estimates that every 1% decline in real household income trims UK GDP by 0.4%, magnifying the risk of prolonged stagflation if energy or food prices resurge. Against this backdrop, GBP/USD’s recovery remains heavily dependent on fiscal clarity and BoE forward guidance.

Short-Term Scenarios for GBP/USD

Bullish scenario: A close above 1.3160 would neutralize the bearish structure, opening the door to 1.3215 (November 13 high) and later 1.3300. A breakout would require a dovish Fed outcome or a budget that reassures gilt investors.

Bearish scenario: Failure to defend 1.3030 leads to 1.3000 and 1.2950, potentially testing the April low at 1.2707. Momentum indicators suggest rising risk of this outcome if the BoE signals an imminent rate cut without offsetting growth incentives.

Outlook and Market Bias

The current environment leaves GBP/USD range-bound between 1.3040–1.3150, yet technically fragile. BoE easing expectations, weak UK data, and a steady dollar form a trifecta of resistance to sustainable gains. Traders should monitor budget announcements, U.S. PPI data, and BoE speeches for directional confirmation.

Verdict: Hold with Bearish Bias.
Upside capped near 1.3160, downside risk toward 1.2950 if fiscal disappointment aligns with dovish BoE tone. Short-term sentiment remains defensive until the pair breaks decisively above 1.3200 with strong momentum.

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