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GBP/USD hits a 7-month low after Reeve’s pre-budget speech

GBP/USD has fallen to a seven-month low as gilt yields dropped after finance minister Rachel Reeves reiterated the government's commitment to fiscal rules in the upcoming budget.

In a rare pre-budget speech, Reeves reiterated her commitment to budget goals and what many are considering as weaves, paving the way for more tax hikes and tough decisions in the Budget that would come close to breaking the party’s manifesto pledges.

Reeves is increasingly expected to lift income tax by 2p at the same time as lowering National Insurance by 2p as part of the measures that she will take to plug a fiscal black hole of over £20 billion. This means that working people won’t be affected, but pensioners will.

High spending, weak growth, and a productivity downgrade mean Reeves is now in a position where she has little choice but to hike taxes.

The yield on the 10-year benchmark fell to a low of  4.379% before retracing to 4.42%, marking a 1.8 basis point drop on the day, putting pressure on sterling.

Until late October, expectations were that the Bank of England would leave rates unchanged until at least spring next year. However, thanks to signs of cooling inflationary pressures and rising expectations of more tax hikes from Reeves, the market is pricing in a 5050% chance of a rate cut this Thursday.

Meanwhile, the US dollar is trading at multi-month highs, supported by reined-in expectations surrounding a December Fed rate cut.  The Fed cut rates by 25 basis points last week, and traders are now pricing in a 65% chance that the Fed couldn't go with 90% ahead of the meeting.

Recent speeches by Fed officials highlight competing views on where the economy starts and the risks it faces in the absence of data due to the ongoing U.S. government shutdown.
 

GBP/USD forecast – technical analysis

After facing rejection at the 50 SMA, GBP/USD has fallen sharply lower, breaking below the 200 SMA to a 7-month low of 1.31. The RSI is very oversold, so there would be a period of consolidation or even a move higher before further declines.

Sellers will look to extend losses towards 1.30, the psychological level, and the March high. A break below here could spark a deeper selloff to 1.27, the April low.

Resistance is seen at 1.315; a rise above this exposes the 200 SMA at 1.3260 – a move above here could negate the near-term downtrend.

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Oil falls on supply concerns

Oil prices are edging lower, amid persistent supply concerns. According to the International Energy Agency, continued increases in supply from OPEC, the US, Canada, and Guyana mean the market will have to navigate a significant surplus balance of 4 million barrels per day in 2026.

The report added that oil purchases from China of almost 500,000 barrels a day, and a demand growth estimate of 900,000 barrels a day, won't offset the downward pressure on oil prices.

Over the weekend, OPEC+ agreed to increase output by 137k barrels per day in December but said it would pause output increases in the first quarter of 2026, an attempt to offset some supply concerns as the group looks to increase its market share.

Meanwhile, a stronger U.S. dollar is also weighing on oil prices. The U.S. dollar is trading at a three-month high, boosted by reduced expectations surrounding a December rate cut. A stronger USD makes oil more expensive for buyers with other currencies.

Looking ahead, attention will be on API oil inventories for further insight into the demand picture. 
 

Oil forecast - technical analysis

Oil trades in a falling channel dating back to late July. The recent recovery from the 56.00 low stalled at the 50 SMA. The price currently trades between the 50 SMA on the upside and 60.00 on the downside.

Sellers will need to break below the 60 SMA to extend he bearish trend towards 56.00, the October low, and 55.50, the 2025 low.

Buyers will look to rise above the 50 SMA at 62 and the falling trendline resistance at 62.50 to bring 65.00 into focus.
 

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