GBP/USD (1.3283) Tests Range Floor After a Shock-Free Budget, BoE Hike Priced Above 90% — Rebound Path to 1.3409

GBP/USD traded at 1.3283 on Wednesday afternoon in London, down 0.0023 or 0.17% from Tuesday’s close near 1.3306, extending its losing streak to a fourth consecutive session. The pound touched a more than one-week low of 1.3280 ahead of Chancellor John Healey’s first Autumn Budget and showed little reaction once the statement began at 12:30 GMT, trading around 1.3290 through the speech.

The budget cleared the bar the market had set. Healey confirmed fiscal headroom of £15 billion against the stability rule in 2029/30, rising to £22 billion in 2030/31, in line with the £15 billion that bond dealers had expected and below the £23.6 billion set out in March. He pledged no tax rises on working people, no broad-based tax increases and no cuts to public services, and he said the government would meet its fiscal rules. Gilts rallied modestly, with the 10-year yield extending its decline to 5.34%, down 1.4 basis points on the day.

The relief did not translate into a sterling rally, and that is the key signal for the forecast. With a market-friendly budget already priced in, the bar for a positive surprise was high, and Healey delivered a neutral outcome rather than a positive one. A cushion of £15 billion is small for an economy facing weak growth, debt-servicing costs that rose by £14 billion this year and an energy shock from the Iran war. The budget bought time rather than removing the fiscal risk premium that has kept sterling from capturing the yield advantage of gilts over Treasuries.

Sterling’s direction now passes to the central banks. The Federal Reserve announces its decision at 18:00 GMT, with a 92.8% chance of a hold at 3.75% to 4.00% and an 84.4% chance of a December hike. The Bank of England decides on November 5, with markets pricing more than a 90% chance of a quarter-point hike to 4.00% after September inflation jumped to 3.5%.

The forecast is a range with a softer bias against the dollar. GBP/USD has spent 2026 range-bound against the greenback, up just 0.69% over 12 months, while rising strongly against the euro. The base case through the BoE meeting is 1.3240 to 1.3410. A hawkish Warsh tonight breaks 1.3274 and opens 1.3194 and 1.3180. A data-dependent Fed combined with a confirmed BoE hike lifts the pair back to the 1.3409 to 1.3430 resistance zone.

From 1.3409 to 1.3280: A Four-Day Retreat Into the Budget

The pound entered the budget week near the top of its October range. GBP/USD rebounded from its 2026 low of 1.3137 on October 14 to close at 1.3379 on October 20, after trading between 1.3301 and 1.3409 that day, a one-month high. It pushed to a five-week high on October 22 before the dollar’s recovery began. At 1.3373 on October 21, the pair stood 1.8% above its mid-October low.

The retreat started on Monday. GBP/USD fell below 1.3350 for the first time since the October 20 UK jobs data and ended just under that level after three sessions above it, as traders bought back dollars ahead of the Fed. On Tuesday the pair drifted back toward 1.3330 by midday in London, with no UK data on the calendar, and finished the session near 1.3306 as the dollar extended a three-day rally.

Wednesday added the fourth leg. GBP/USD traded around 1.3290 in Asian hours, softened to near 1.3300 in the early European session, and slipped 0.2% to 1.3280, a more than one-week low, before the budget. Overnight implied volatility on GBP/USD was firmer, reflecting caution ahead of the Chancellor’s set-piece delivery. By the time Healey stood up at 12:30 GMT, cable had given back 129 pips from the 1.3409 one-month high, a decline of 0.96% in five sessions.

The decline came from both sides of the pair. On the dollar side, the dollar index reached a two-week high of 102.39 before the Fed, with the US 10-year Treasury yield up 1.2 basis points at 5.01%. On the sterling side, caution ahead of the budget accounted for some of the softness, and traders who might have bought on the UK growth story stepped back until the fiscal numbers were known.

The pound also fell against the yen. GBP/JPY traded around 209.70 in the European session, down 0.17%, as sterling weakness weighed on the cross ahead of the budget. Against the euro the picture was different: sterling had closed Tuesday near a 17-month high versus the single currency, and the euro hit its lowest since May 2025 against the pound.

The pattern explains the forecast. GBP/USD is being driven primarily by the dollar, with sterling-specific factors adding volatility around events. The budget removed one sterling-specific risk without adding a sterling-specific catalyst, which leaves the pair at the mercy of the Fed tonight.

£15 Billion of Headroom, Down From £23.6 Billion in March

The headline number met expectations precisely. Healey said the Office for Budget Responsibility confirmed headroom against the stability rule of £15 billion in 2029/30, before rising to £22 billion in 2030/31. A Reuters poll of bond dealers earlier this month had pointed to £15 billion. The figure compares with £23.6 billion in the March forecast under his predecessor, Rachel Reeves, a reduction of £8.6 billion, or 36%, in seven months.

Pre-budget analysis had set out how the market would grade the number. A headroom figure of £14 billion to £15 billion was seen as the lower bound of a satisfactory outcome. Below £14 billion, the Chancellor risked a negative bond market reaction. A figure close to or above the £24 billion Reeves had built was expected to produce a positive reaction. Healey landed at the bottom of the acceptable range.

The erosion came from borrowing costs. Healey said the government will spend an additional £14 billion on debt interest this year, a direct result of higher gilt yields. Some estimates before the budget had suggested headroom could have fallen as low as £11 billion, down from £24 billion, as inflation and higher yields ate into the buffer. Healey said he had chosen to use some of the headroom established last year to absorb the impact of the Iran war to protect the economy and family budgets.

The political framing matched the fiscal one. Healey called the budget one built on fiscal discipline in the face of global economic storms. He rejected broad-based tax rises and cuts to public services, ruled out raising taxes on working people, and said the government’s first priority is cheaper energy. He reaffirmed that the government remains committed to net zero by 2050. The budget was the first under Prime Minister Andy Burnham’s government.

Healey said the budget puts Britain on track to eliminate the current budget deficit within three years. That is the claim the gilt market will test over the coming months. A buffer of £15 billion leaves little room for further shocks: another 30 to 40 basis points on gilt yields, a renewed spike in energy costs, or a growth miss could wipe it out before the next fiscal event.

For sterling, the outcome is neutral. There is no obvious fiscal shock to drive a sell-off, but there is also little in the budget to materially improve the UK’s growth outlook. That is why cable did not rally despite the gilt market’s relief.

OBR Cuts 2027 Growth to 1.0% and Sees 3.5% Inflation Next Year

The OBR’s forecasts give sterling a mixed backdrop. The fiscal watchdog upgraded its growth forecast for 2026 to 1.2%, followed by 1.0% in 2027, 1.6% in 2028, 1.8% in 2029, 1.7% in 2030 and 1.6% in 2031. The sharp downgrade for 2027 is the standout number: growth of 1.0% next year leaves the UK economy with little momentum as it absorbs the energy shock and higher interest rates.

The borrowing path is credible on paper. The OBR forecasts a budget deficit of 4.2% of GDP this year, narrowing to 3.4% next year, 2.9% in 2028/29, 2.1% in 2029/30 and 1.8% in 2030/31 and 2031/32. The 2030/31 figure compares with 1.6% in the March forecast, a modest deterioration. Public finances are on a consolidating path, but a slower one than six months ago.

Inflation is the number that matters for the Bank of England. The OBR expects inflation to average 3.5% in 2027 and to return to the 2% target only in 2028. That forecast is consistent with the BoE’s own projection, set out on September 17, that inflation would rise to slightly above 4% in the first quarter of 2027. Before the Middle East conflict, the Bank had expected inflation to fall to around 2% from April 2026 and stay close to that level.

That combination of slower growth and higher inflation is stagflationary. For sterling, the inflation side supports higher rates and a firmer currency in the near term, because it forces the BoE to tighten. The growth side weakens the medium-term case for investing in UK assets, because returns on equity and real activity suffer.

The fiscal measures add a small inflationary impulse in the short term and a disinflationary one later. Extending the VAT cut on electricity to July and paying £100 to 20 million households for energy lowers measured inflation in the near term. A reported 3.9% rise in the minimum wage for over-21s, to around £13.20, runs two-tenths faster than the 3.7% growth in pay excluding bonuses, which keeps wage pressure firm.

The market read is that the BoE has to hike. With the OBR seeing 3.5% inflation next year and the Bank itself projecting a peak above 4% early in 2027, the November 5 meeting looks set to deliver a quarter-point increase. That rate support is the main reason sterling has held up against the euro and remains in a range against the dollar rather than falling.

Energy Relief and a Triple Lock Overhaul Shape the Spending Mix

The budget’s spending measures focused on the energy shock. Healey announced a £100 payment for 20 million households to help with energy costs, a scheme that will cost £2.6 billion. He extended the VAT cut on electricity to July and said the government will scrap the upcoming gas shippers obligation. He described cheaper energy as the government’s first priority.

Those measures were funded within the fiscal rules rather than through extra borrowing. Spending increases were modest, with relatively small new commitments paid for by reallocating money from elsewhere rather than by issuing more debt. That design choice was aimed at the gilt market: overseas investors hold about 29% of all gilts, which means any hint of unfunded borrowing could hit sterling quickly through bond outflows.

The pension change was the most significant long-term measure. Healey set out plans to adjust the state pension triple lock, under which pensions rise by the highest of earnings growth in the three months to July, inflation in the year to September, or a flat 2.5%. The government plans to change the mechanism in 2030 if it wins the next general election, moving toward a double lock. Healey said the adjustment would save £15 billion a year by the end of the 2030s and £50 billion by 2050.

That reform matters for gilt investors because it addresses one of the largest drivers of long-term spending growth. A credible plan to slow pension spending improves the long-run debt trajectory, even if the savings arrive well beyond the forecast horizon. It also carries political risk, because it depends on the outcome of an election that has not yet been called.

Healey ruled out raising taxes on working people and rejected broad-based tax rises. Targeted revenue measures had been expected to hit banks, online retailers and gambling, sectors where tax increases carry less political cost. Those targeted measures are small relative to the £14 billion rise in debt interest, which is why the headroom fell.

For sterling, the spending mix avoided the 2022 scenario. In September 2022, the unfunded tax cuts in Liz Truss’s mini-budget triggered a gilt rout and sent the pound to record lows against the dollar. Healey’s budget is the opposite: modest, funded and focused on household support. That removes the tail risk of a fiscal crisis but does not provide the growth story needed to attract new capital into sterling.

Gilts Eased to 5.34%, but a 33bp Yield Edge Still Isn’t Helping Sterling

The bond market’s reaction was the key test, and it passed. The UK 10-year gilt yield extended its decline to 5.34%, down 1.4 basis points on the day, as Healey spoke. Yields nudged up briefly as the Chancellor outlined the headroom figure, then moved lower again at the end of his speech. The 30-year gilt yield had been up 2 basis points before the budget, after easing slightly from its highest level since early 1998, hit earlier this month.

The calm reflects the absence of a credibility shock. Market commentary before the budget focused on the direction of gilts in the hour after the statement as the key read, rather than the headline measures. A retest of the 5.53% 10-year high set earlier this year would have hit sterling. A move lower, as delivered, keeps the fiscal risk premium contained.

The puzzle is why gilts’ yield advantage is not supporting the pound. At 5.34%, the UK 10-year yield sits 33 basis points above the US 10-year Treasury at 5.01%. In normal markets, that carry advantage would attract capital into sterling, because investors earn more by holding UK government debt than US debt. Instead, gilt yields near 18-year highs reflect a fiscal risk premium rather than monetary tightness, and investors demand that extra yield as compensation for UK-specific risk.

That distinction is the core of the sterling forecast. When yields rise because the central bank is hiking, the currency strengthens. When yields rise because investors fear the government’s finances, the currency weakens or stalls. UK yields have risen for both reasons in 2026, and the fiscal component has kept sterling from benefiting fully from the monetary component.

The foreign ownership share amplifies the risk. With overseas investors holding about 29% of gilts, any loss of confidence would translate into currency selling as foreign holders sold bonds and repatriated proceeds. The budget avoided that outcome, but it did not reverse the underlying exposure.

The forecast depends on whether gilts keep easing. A sustained fall in the 10-year yield toward 5.20% on a credible fiscal path, with the BoE hiking, would shift the yield story from risk premium to monetary support and help sterling. A rebound above 5.40%, driven by renewed fiscal doubts or a hawkish Fed lifting global yields, would restore the risk premium and push cable toward 1.3194.

A Bank of England Hike on November 5 Is Priced Above 90%

The Bank of England is sterling’s most important support. Markets price more than a 90% probability of a quarter-point increase to 4.00% at the November 5 meeting, and 54 of 63 economists in an October survey expect Bank Rate to reach 4.00%. That would be the Bank’s first rate increase since the August 2023 peak of 5.25%, after a cutting cycle that took Bank Rate down from August 2024 to December 2025.

The case for a hike built through the autumn. On September 16, the Monetary Policy Committee voted 6-3 to hold Bank Rate at 3.75%, with three members voting to raise it to 4%, the same split as in July. It was the sixth hold of the year. The Bank warned that the longer energy prices stayed high, the greater the risk of more persistent inflation, and the more likely it would need to raise Bank Rate.

Inflation then forced the issue. UK consumer price inflation rose to 3.5% in September from 3.1% in August, the highest in almost a year and well above the 2% target. In September, around 90% of market participants had expected rates to stay unchanged for the rest of 2026. By late October, after the inflation print, the market had moved to price a hike as close to certain.

Wages support the hawks. Pay growth excluding bonuses stands at 3.7%, at the centre of the case for a November hike. The reported 3.9% minimum wage increase for over-21s runs slightly faster, which adds to the risk of second-round effects. The MPC had noted in September that higher global energy costs had so far had a limited effect on price and wage setting, but that the risk would grow the longer volatility persisted.

The November meeting comes with a new Monetary Policy Report, which will include updated forecasts that incorporate the budget’s measures. The decision is due at 12:00 UK time on November 5. A hike with guidance pointing to further increases in 2027 would be the most supportive outcome for sterling. A hike framed as one-and-done would leave the pound vulnerable once the event passes.

The rate outlook explains sterling’s resilience against the euro. The ECB holds its deposit rate at 2.50%, while the BoE is set to move to 4.00%, a 150-basis-point gap. Against the dollar, the picture is less favorable. A BoE hike to 4.00% would bring Bank Rate level with the top of the Fed’s range. If the Fed hikes in December, as priced at 84.4%, the US advantage is restored.

The Fed at 18:00 GMT Decides Whether 1.3274 Holds

The Federal Reserve is the next and larger catalyst for GBP/USD. The FOMC announces its decision at 18:00 GMT, with Chair Kevin Warsh’s press conference at 18:30 GMT. Futures price a 92.8% chance of a hold at 3.75% to 4.00% and an 84.4% chance of a December hike, after the September increase that was the Fed’s first since 2023.

The dollar enters the decision firm. The dollar index traded at a two-week high of 102.39 on Wednesday after a three-day rally, and the US 10-year Treasury yield rose to 5.01%. Investors expect the Fed to signal readiness for a December hike, and there is a risk of dissents in favor of a hike today, which would strengthen the market’s conviction about December.

The Fed and the BoE are now on a similar path. Both central banks raised rates or are about to, both face energy-driven inflation, and both are expected to tighten again. The difference for GBP/USD lies in timing and magnitude. If the Fed hikes in December and signals more in 2027, while the BoE hikes once in November and pauses, the dollar keeps its yield advantage. If Warsh signals that December depends on data, citing September payrolls of just 29,000, while the BoE delivers a hike with hawkish guidance, the gap narrows in sterling’s favor.

The hawkish risk is real. A Fed that holds but reinforces December, especially with dissents, would lift the dollar regardless of what the Chancellor said. In that scenario, GBP/USD can fall even after a well-received budget, and 1.3274, the bottom of the pre-budget range, becomes the first test. A break below it would open 1.3194 and 1.3180.

The dovish case would hit a market that has been buying dollars for four days. Short-term positioning has shifted toward the dollar since Monday, as traders bought back greenbacks ahead of the decision. A less hawkish Warsh would force some of that to unwind, carrying cable back toward 1.3350 and the 1.3409 to 1.3430 resistance zone.

Thursday adds a second US test. September PCE inflation and third-quarter GDP land at 12:30 GMT. A hot PCE reading would confirm the December hike and support the dollar into the weekend. A soft print would undercut it. The ECB also announces its decision at 13:15 GMT Thursday, which will move EUR/GBP and, indirectly, the dollar index.

Sterling Sits Near a 17-Month High Against the Euro

The pound’s weakness against the dollar contrasts with its strength against the euro. Sterling closed Tuesday near a 17-month high versus the single currency, and the euro hit its lowest since May 2025 against the pound. On Wednesday, the pound slipped 0.2% to 83.7 pence per euro ahead of the budget, a modest retreat from that high. EUR/GBP set a 2026 low of 0.8385 on October 20 and traded near 0.8375 on Wednesday, based on EUR/USD at 1.1126 and GBP/USD at 1.3283.

The divergence reflects the euro’s problems more than sterling’s strength. EUR/USD sits at its 2026 low near 1.1113, weighed down by French bond stress that pushed the OAT-Bund spread back to 161 basis points, $115 Brent that hits the eurozone harder than the UK, and an ECB deposit rate of 2.50% that sits 125 basis points below Bank Rate. Sterling is winning a relative contest against a weaker currency.

Over the past month, sterling has beaten every G10 currency except the dollar and the Norwegian krone. The UK’s rate outlook, with a hike priced near 90% for November, is more hawkish than the ECB’s, the Bank of Japan’s or the Swiss National Bank’s. Only the Fed’s December pricing and Norway’s oil-backed krone have kept pace.

The cross matters for the GBP/USD forecast in two ways. First, it shows that sterling has independent support from rate expectations, which limits the downside against the dollar. If GBP/USD falls on dollar strength, sterling is likely to hold up against the euro, which means cable’s decline should be slower than EUR/USD’s. Second, it shows that the pound is not being sold on UK-specific fears, which supports the read that the budget passed without damage.

The risk to the cross comes from Thursday’s ECB meeting. If President Christine Lagarde signals that a December hike is likely, the euro could recover against both the dollar and sterling. That would push EUR/GBP back above 0.8400 and could weigh on cable through the cross. The ECB is expected to hold at 2.50%, with 64 of 73 economists expecting a December hike.

Positioning on the cross is stretched. Some market commentary describes GBP/EUR as deeply overbought after its run to the 17-month high, with a shallow pullback as the base case. A pullback in the cross would not by itself break GBP/USD’s range, but it would remove one source of sterling support at a time when the dollar is firm.

$115 Brent Hits the UK Less Than the Eurozone, but Still Bites

Energy is the second macro driver for sterling after rates. Front-month Brent traded at $115.30 on Wednesday, up 1.25%, after a Houthi claim of a strike on Saudi Arabia’s Ras Tanura refinery, and the OBR named the war in the Middle East as a key driver of its forecasts. Healey said the government would use some of its fiscal headroom to absorb the impact of the Iran war.

The UK is less exposed than the eurozone but more exposed than the US. As a net energy importer with North Sea production in decline, the UK pays more for oil and gas when prices rise, which worsens its trade balance and squeezes household incomes. The eurozone imports almost all its energy, so it suffers more. The US is a net exporter and benefits on balance. That ordering explains why sterling has outperformed the euro but lagged the dollar.

Energy feeds directly into UK inflation. CPI rose to 3.5% in September, with energy a major driver, and the BoE expects inflation to peak slightly above 4% in the first quarter of 2027. The government’s energy measures, including the £100 household payment and the extended VAT cut on electricity, will lower measured inflation temporarily but do not change the underlying cost pressure.

The Bank of England has to respond to that pressure, which is why a November hike is priced above 90%. Higher energy prices therefore support sterling through the rate channel while weakening it through the trade and growth channels. In the near term, the rate effect dominates, which is why sterling has held up. Over a longer horizon, the growth effect becomes more important, and the OBR’s 1.0% forecast for 2027 shows it is already biting.

The geopolitical calendar adds risk. Reports on Wednesday said Washington has told Gulf states to prepare for renewed strikes on Iran after the November 3 US midterm elections. A renewed campaign that pushed Brent toward $120 or higher would lift UK inflation further, strengthen the case for more BoE hikes and widen the fiscal hit. That combination would likely support sterling against the euro but weaken it against the dollar, as the US benefits from higher energy prices while the UK pays for them.

A settlement that pulled Brent back toward $108 would ease UK inflation, reduce the need for BoE hikes beyond November and help growth. That would be neutral to modestly negative for sterling’s rate support but positive for its growth outlook, a combination that typically leaves GBP/USD range-bound.

A Year Going Nowhere: 1.3137 Low, 0.69% Annual Gain

Sterling’s 2026 performance against the dollar has been flat. GBP/USD is up just 0.69% over the past 12 months and 0.40% over the past month, even after the four-day slide. The pair has traded in the middle of its 2026 range against the dollar while rising against the euro, a pattern that reflects the dollar’s own strength as the Fed hiked and US yields rose.

The year’s low came on October 14 at 1.3137, when French bond turmoil and a dollar surge hit European currencies broadly. From there, sterling rebounded 1.8% to 1.3373 by October 21 and touched 1.3409 on October 20, its one-month high, supported by firmer UK jobs data and rising BoE hike expectations. The October 22 high marked a five-week peak before the dollar’s recovery began.

The range has defined the trade. Against the dollar, sterling has gone nowhere in 2026, as rate hikes on both sides of the Atlantic offset each other. The BoE’s six straight holds through September kept UK rates at 3.75% while the Fed hiked in September, which favored the dollar. The expected BoE hike in November narrows that gap, which is why sterling rallied in mid-October.

The UK’s fiscal position has capped the upside. Every rally toward 1.3400 has met selling from investors worried about gilt yields near 18-year highs, the shrinking fiscal buffer and political risk ahead of the budget. With the budget now delivered without a shock, that cap may loosen slightly, but the £15 billion headroom is not large enough to remove it.

The downside has been capped by rates. Every dip toward 1.3150 has met buying from investors attracted by the BoE’s hawkish turn and the 33-basis-point yield advantage of gilts over Treasuries. A November hike to 4.00% would strengthen that floor.

The forecast range reflects those two forces. GBP/USD is likely to stay between 1.3180 and 1.3430 through the BoE meeting, with the Fed determining which end of the range gets tested first. A break outside that range would require a surprise from one of the central banks or a renewed fiscal or geopolitical shock.

The Technical Map: 1.3274 Below, 1.3409 to 1.3430 Above

GBP/USD’s chart shows a range with a mildly bearish configuration. On the daily timeframe, the pair holds below its 100-day simple moving average, which keeps the broader setup tilted lower despite the mid-October bounce from the 2026 low. Four straight down days have taken the pair from the top of its October range to the lower half.

Immediate support is 1.3274, the bottom of the pre-budget trading band identified by the market. Wednesday’s one-week low of 1.3280 sits just above it. A daily close below 1.3274 would confirm a break of the range and open 1.3194 and the 1.3180 area, the next support zone. Below that, the 2026 low at 1.3137 is the major floor.

Resistance starts at 1.3300, the round number the pair lost in the European morning. Above that, 1.3330, Tuesday’s midday level, and 1.3350, where the pair broke down on Monday, form the next band. The key resistance zone sits between 1.3409, the October 20 one-month high, and 1.3430. A close above 1.3430 would open 1.3500, a level that a credible budget combined with a non-hawkish Fed was expected to bring into play.

The distances frame the risk. From 1.3283, the downside to 1.3274 is just 9 pips, which means the range floor is being tested now. The downside to 1.3194 is 89 pips, or 0.67%, and to 1.3137 is 146 pips, or 1.10%. The upside to 1.3409 is 126 pips, or 0.95%, and to 1.3500 is 217 pips, or 1.63%.

The pair sits closer to support than resistance, with the trend mildly lower. That positioning gives the Fed decision outsized influence: a hawkish outcome would push the pair through a level it is already testing, while a dovish one would trigger a rebound from support.

Implied volatility confirms the event risk. Overnight GBP/USD volatility was firmer ahead of the budget, and with the Fed tonight and US PCE, the ECB and Germany’s inflation data on Thursday, short-dated volatility is likely to stay elevated through the end of the week.

GBP/USD Forecast: 1.3240 to 1.3410 Range, 1.3194 on a Hawkish Fed

The forecast for GBP/USD now rests on the central banks rather than the Treasury. Healey’s budget delivered £15 billion of headroom, in line with expectations, avoided broad tax rises, funded £2.6 billion of energy support within the rules and set out a triple lock overhaul that saves £15 billion a year by the late 2030s. Gilts eased to 5.34%. Sterling did not react, because a market-friendly budget was already priced.

The base case is a range between 1.3240 and 1.3410 through the November 5 BoE meeting. The Fed holds tonight and keeps December open, the dollar stays firm near 102.40, and the BoE delivers a quarter-point hike to 4.00% next week. Rate support from the BoE offsets the Fed’s December pricing, and sterling holds up against the dollar while staying strong against the euro.

The bullish case targets 1.3409 to 1.3430, then 1.3500. It requires a Warsh who frames December as data-dependent, a soft US PCE print on Thursday, and a BoE hike on November 5 with guidance pointing to further increases in 2027. A continued decline in gilt yields toward 5.20% would show the fiscal risk premium easing, allowing sterling to capture more of its yield advantage. A short squeeze on dollar longs built over the past four days would add momentum.

The bearish case targets 1.3194 and 1.3180, then the 1.3137 low. It requires a hawkish Fed that reinforces December, ideally with dissents, a hot PCE print, and a BoE hike framed as one-and-done. A renewed rise in gilt yields toward 5.53%, triggered by fiscal doubts after the OBR’s growth downgrade or by global yields rising on a hawkish Fed, would add a sterling-specific risk premium. A sharp oil spike after November 3 would hurt the UK’s terms of trade.

The verdict is neutral with a modest bearish tilt against the dollar in the near term. The budget removed a tail risk, and the BoE hike gives sterling a floor, but the Fed’s December pricing, a dollar at a two-week high and a pair already testing its 1.3274 support favor a dip before a recovery. GBP/USD at 1.3283 is a buy on dips toward 1.3194 into the BoE meeting, with a stop below 1.3137, and a sell on rallies toward 1.3409 to 1.3430 unless the Fed turns less hawkish tonight. A daily close below 1.3274 opens 1.3194, while a close above 1.3430 turns the bias bullish toward 1.3500.

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