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GBP/USD slips as investors continue to digest the Chancellor’s budget

• The Chancellor’s tax-heavy budget sees her fiscal buffer double
• BoE is still expected to cut rates next month
• GBP/USD tests 1.32 support

GBP/USD is easing lower after solid gains yesterday as investors continue to digest the UK budget.

Despite the chaotic start to the Budget, which saw the OBR mistakenly release the Budget measures and forecasts ahead of Chancellor Rachel Reeves’s speech, the markets initially liked what they saw.

The Chancellor’s tax-heavy budget meant she managed to double her fiscal headroom to £22 billion, well above the 15 billion that economists had expected.  This was sufficient to please the bond market at least for now, sending yields across the curve lower.

However, this was pretty much where the good news ended. The OBR downgraded UK growth in 2026 to 1.4% down from 1.9%, and it also upwardly revised inflation. Welfare spending is soaring, living standards are expected to rise more slowly, and the tax burden will reach a record high of 38% of GDP.

While the markets liked the larger fiscal margin, there is still reason to be cautious given increased spending in the near term, whilst the tax hikes will take effect later. This means that if economic growth falls short of expectations, tax revenues could be lower and spending higher, eroding the headroom once again. With the tax hikes back-loaded, the plan's credibility won't be known for some time.

The Bank of England is still expected to cut interest rates at the December meeting, which limits sterling's upside.

The USD is rising today but is lower for the week amid expectations that the Federal Reserve will cut interest rates at its December meeting. U.S. markets are closed for Thanksgiving today, so volumes could be thin.
 

GBP/USD forecast – technical analysis

GBP/USD has recovered from its 1.3040 November low, rising above 1.32 and the falling trendline, which, combined with the RSI above 50, keeps buyers hopeful of further gains.

Buyers will look to extend the recovery above the 200 SMA at 1.33. A rise above 1.3350 puts the pair on a more stable footing.

On the downside, support is seen at 1.32, and below, here, 1.31 support comes into focus. A break below 1.30 could spur a deeper sell-off towards 1.27.
 

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EUR/USD hovers below 1.16 ahead of EZ consumer confidence & ECB meeting minutes

• ECB is expected to leave rates unchanged across 2026
• Expectations of a December Fed rate cut have risen to 85%
• EUR/USD needs to rise above the 50 SMA to extend its recovery

EUR/USD is holding steady, just below 116, and its highest level since mid-November, as investors look towards a busy economic calendar at the end of this month, including inflation data from Germany, the eurozone's largest economy, on Friday.

Today, German consumer confidence showed a slight improvement heading into December as households showed more willingness to spend ahead of the holiday season. This was a bright point in data after figures earlier in the week showed that German GDP stagnated and Ifo business sentiment deteriorated.

Looking ahead, eurozone consumer confidence is due later today, along with the minutes from the meeting at which the central bank left interest rates unchanged.

On the policy front, the ECB is widely expected to keep interest rates unchanged through 2026, supported by resilient economic growth and inflation near the 2% target.

Meanwhile, the US donor is on track for its worst weekly performance in four months amid thin volumes due to the US Thanksgiving holiday.

The US dollar has come under pressure amid rising expectations that the Federal Reserve will cut interest rates in the December meeting. Softer-than-expected U.S. economic data and dovish comments from several Fed officials now have the market pricing in an 85% probability of a rate cut next month, up from 30% last week.

The ECB-Fed rate path diversion could support EUR/USD higher.
 

EUR/USD forecast – technical analysis

After falling away from 1.1920, the 2025 high, EUR/USD is trading in a holding pattern supported on the downside by the 1,145—1.15 support zone, while the 50 SMA caps gains. The RSI is neutral.

Buyers will need to rise above he 50 SMA at 1.1630 to extend gains towards 1.17. Above here, 1.1780 comes into focus.

Failure to rise above the 50 SMA could see the price retest the 1.1450-1.15 support zone. A break below here exposes the 200 SMA at 1.1420. Should sellers take out support at 1.14, the July low, this could spur a much deeper decline towards 1.12.
 

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