The Pound Sterling edged higher on Wednesday, trading near 1.3180 against the US Dollar (USD) during the European session as markets awaited the United Kingdom’s (UK) budget report, scheduled for release at 12:30 GMT.
Economists expect UK Chancellor of the Exchequer Rachel Reeves to introduce £20–30 billion in tax increases, according to Reuters. These measures are aimed at addressing the government’s £22 billion fiscal shortfall and maintaining Labour’s self-imposed fiscal rules. Expectations of higher taxes have helped ease fiscal concerns, pushing 10-year UK gilt yields down 0.3% to around 4.51%.
On the monetary policy front, traders are increasingly confident that the Bank of England (BoE) will cut interest rates at its December meeting. Cooling inflation and subdued labour demand have strengthened the case for a more dovish stance.
The US Dollar has weakened as markets raise bets on additional Federal Reserve (Fed) rate cuts later this year. The CME FedWatch Tool now shows an 84.9% probability of a 25 basis-point cut in December—up sharply from 30.1% just one week ago. Sentiment shifted further after New York Fed President John Williams signaled slowing economic growth and a cooling job market, noting that monetary policy remains “modestly restrictive” and could warrant further adjustment.
GBP/USD Technical Outlook
GBP/USD has climbed to 1.3180, though the broader trend remains bearish, with the pair still trading below the 200-day Exponential Moving Average (EMA) at 1.3250. The August low at 1.3140 now acts as a key resistance-turned-support level.
The 14-day Relative Strength Index (RSI) is hovering near 50, with bullish momentum likely to strengthen if the indicator breaks above 60.
- Support: April low around 1.2700
- Resistance: October 28 high near 1.3370
Pound Sterling FAQs (Summary)
- What is the Pound Sterling?
The UK’s official currency and the world’s oldest still in use, widely traded globally—especially in GBP/USD (“Cable”). - How does the Bank of England influence GBP?
Interest rate decisions based on its 2% inflation target are the biggest driver of the Pound. Higher rates typically strengthen GBP; lower rates weaken it. - How does economic data affect GBP?
Strong data (GDP, PMIs, employment) boosts the Pound by signaling economic strength and potentially prompting higher interest rates. - How does the trade balance affect GBP?
A positive trade balance strengthens the currency, as foreign buyers must purchase GBP to pay for UK exports.
