GBP/USD Price Forecast - Pound (Cable) Steadies at 1.3118 as Markets Await UK Budget

GBP/USD (Cable) Holds Above 1.3100 As UK Budget, Falling Yields, And Fed Pivot Shape Direction

GBP/USD trades near 1.3118, holding its ground after multiple intraday swings between 1.3080 and 1.3130, as traders position ahead of the UK Autumn Budget and a crucial week for both fiscal and monetary expectations on both sides of the Atlantic. The pair has absorbed several conflicting macro currents — dovish Bank of England sentiment, weaker UK inflation, fiscal tension over the £20 billion structural deficit, and renewed bets on a December Federal Reserve rate cut.

UK Fiscal Outlook And The Autumn Budget’s Structural Challenge

Markets are fully focused on Chancellor Rachel Reeves’ fiscal statement expected Wednesday, with investors anticipating politically difficult measures aimed at closing the £20 billion deficit. Reeves is expected to abandon a direct income tax increase, instead leaning on threshold freezes, selective levies, and higher capital and property taxes to restore fiscal credibility. This mixed approach attempts to maintain the Labour manifesto’s working-class protection pledge but has already triggered skepticism across bond desks.

UK 10-year gilt yields dropped sharply to 4.54%, indicating both a demand for safety and reduced inflation expectations. The yield curve flattening suggests that traders are pricing in slower growth rather than fiscal strength, a dynamic that keeps Sterling (GBP) capped. The Office for Budget Responsibility (OBR) is likely to downgrade 2026 GDP growth from 1.2% to around 0.9%, tightening fiscal flexibility and raising the risk of a credibility test in the gilt market.

Inflation Data Reinforces Dovish BoE Expectations

UK inflation cooled further to 3.6% year-on-year in October, the lowest since early 2022, fueling speculation that the Bank of England could deliver a 25-basis-point rate cut in December. Money markets now assign an 80% probability of a cut, up from 46% two weeks ago. Core inflation also eased to 4.1%, underscoring a softening price environment across services and retail goods.
However, this easing cycle comes with side effects. Lower rates have driven mortgage refinancing costs down 35 basis points over the past month, yet they also reduced gilt yields to the lowest since July, compressing GBP’s yield advantage over the USD. The BoE faces the difficult task of avoiding a premature easing while fiscal tightening looms — a delicate balance that defines the current uncertainty around GBP/USD.

US Dollar (USD) Dynamics Anchor GBP/USD Range

The U.S. Dollar Index (DXY) holds at 99.92, restrained by dovish rhetoric from Fed officials. Governor Christopher Waller emphasized the weakening labor market as a greater risk than inflation, reinforcing expectations of a December 25-basis-point rate cut. Fed funds futures show an 81% probability of easing, up sharply from 31% last week. Despite this dovish tilt, the dollar maintains safe-haven strength amid geopolitical uncertainty and recessionary fears in Europe.

This mixed dynamic keeps GBP/USD (Cable) trapped in a narrow corridor — support near 1.3050–1.3080 and resistance capped at 1.3180–1.3220. The cross remains heavily correlated with short-term Treasury yields; the 2-year U.S. note yield slipped to 3.48%, narrowing the spread with UK gilts, which now stands at just +106 basis points, its lowest since March.

Market Structure And Technical Framework

On the 4-hour chart, GBP/USD is testing its 50-period moving average at 1.3125, where repeated failures since mid-October form a defined compression zone. A sustained breakout above 1.3125 could accelerate momentum toward the 1.3188 orderblock, with an extended target at 1.3245, where the 200-period MA currently sits. RSI readings near 57 show mild bullish momentum, while MACD has crossed into positive territory — signaling a potential short-term base formation.

Below 1.3100, intraday support forms at 1.3050, followed by the psychological level of 1.3000, where algorithmic buying has historically been triggered. Volume profile analysis suggests heavy positioning around 1.3080, indicating this level remains the key equilibrium point between institutional longs and shorts.

Institutional Positioning, Gilt Reaction, And Market Sentiment

Data from CFTC shows leveraged funds cut net GBP shorts by 8,200 contracts last week, reducing the bearish exposure to its lowest since August. Real-money accounts remain cautious, awaiting clarity from the Autumn Budget. Gilts have rallied 2.3% month-to-date, yet volatility remains elevated — the MOVE Index for UK bonds stands at 117, above its 12-month average of 98, showing markets still fear a credibility shock similar to 2022’s “mini-budget” turmoil.

Analysts at several banks see fiscal tightening as potentially GBP-neutral in the medium term if credibility is maintained. Scotiabank notes that “most negative news is already priced in,” while Credit Agricole emphasizes GBP trades at a discount versus its credit spread, suggesting potential re-rating once fiscal stability is confirmed.

Macro Drivers: US and UK Interplay Into December

Beyond fiscal policy, GBP/USD will react to near-term macro triggers — Wednesday’s UK budget, Thursday’s US PCE inflation, and next week’s Nonfarm Payrolls. UK traders are watching for hints that Reeves’ fiscal plan will maintain market discipline without undermining consumer demand. Any indication of broader austerity could trigger GBP selling, while a credible consolidation roadmap could spark a recovery above 1.3200.

In the U.S., markets anticipate the Beige Book release and Fed Chair Powell’s next comments on labor softness. If employment weakness continues and PCE inflation prints below 2.5%, the Fed may accelerate cuts, potentially pushing GBP/USD higher toward 1.3280–1.3340 in December.

Trading Dynamics And Breakout Triggers For GBP/USD

Price behavior across short timeframes suggests compression before expansion. A confirmed 4-hour close above 1.3125 forms a bullish breakout setup, targeting 1.3188 and 1.3245, supported by improving RSI and EMA recovery. On the downside, rejection near 1.3120 would validate sellers toward 1.3050 and 1.3000, where previous buying clusters remain active.

The structure of higher lows from 1.3020 → 1.3048 → 1.3085 indicates underlying accumulation. As long as these levels hold, the pair retains an upward bias. Traders monitor the 200-EMA as a critical ceiling; a daily close above it confirms trend reversal potential.

Fundamental Correlation Between Gilt Market And GBP/USD Stability

Every shift in gilt yield translates directly into GBP/USD volatility. The 4.54% yield on the 10-year gilt implies easing expectations are now dominant, but if the Autumn Budget restores fiscal discipline and gilt yields climb back above 4.70%, the Pound could strengthen toward 1.3250. Conversely, a weak policy message or further OBR downgrades could push yields below 4.40%, dragging GBP/USD under 1.3050.

UK’s fiscal credibility remains the single most important determinant of GBP behavior this week — overshadowing even BoE expectations. Traders remain cautious, with implied volatility for GBP/USD options at 8.9%, up from 6.5% earlier this month, showing that risk hedging ahead of the Budget is intensifying.

Outlook: Balancing Fiscal Uncertainty And Monetary Divergence

The GBP/USD pair sits at the intersection of fiscal policy credibility and monetary divergence. As of Tuesday, Cable trades at 1.3118, with intraday resistance at 1.3125, immediate support at 1.3050, and extended downside risk to 1.3000. Market participants anticipate high volatility as both the UK Budget and Fed’s December policy shift collide within days.

With the Fed poised to cut while the BoE remains constrained by fiscal instability, GBP/USD could experience sharp two-way movement before a defined trend emerges.

Verdict: Buy on confirmed break above 1.3125, targeting 1.3188 → 1.3245 → 1.3280, with stop protection under 1.3050.
Short-term range: 1.3050–1.3220.
Bias: Cautiously Bullish (Short-Term), Neutral (Medium-Term) pending clarity from the UK fiscal announcement.

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