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GBP/USD drops to a two-week low on USD strength, UK Budget concerns

GBP USD is falling to a two-week low, pressured by a stronger dollar and concerns ahead of the UK budget.

Chancellor Rachel Reeves will deliver her budget on November 26 and is widely expected to focus on fiscal discipline through higher taxes, which could weigh on an already fragile economy.

Recent PMI data show that momentum and confidence in the UK's dominant service sector had faded ahead of the upcoming budget.

While growth is stagnant, inflation remains sticky at 4% still double the BoE's target level.

The market is not expecting the BOE to cut rates until April next year, with two rate cuts expected by the end of 2026.

Bank of England Chief Economist Huw Pill yesterday urged a conservative approach to central banking, highlighting the need to prioritize inflation control.

Meanwhile, the US dollar is pushing higher, rising to a two-month high as it continues to benefit from weakness in the euro and the yen due to political and fiscal issues in France and Germany.

Due to the ongoing U.S. government shutdown, no U.S. economic data is scheduled for release today.

Attention will be on Federal Reserve officials speaking later in the session, including chair Jerome Powell, Michelle Bowman, Neil Kashkari, and Mary Daly, among others.
 

GBP/USD forecast - technical analysis

GBP/USD has broken below the multi-month falling trendline, dropping to test support at 1.3360.

Sellers supported by the RSI below 50 will look to break below 1.3360 to extend the bearish move towards the 1.3150 area, the May and August low, and the 200 SMA.

Buyers will need to rise above 1.3480, the 50 SMA, and last week’s high to push towards 1.36.

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EUR/USD falls to a 6-week low

EUR/USD continues to struggle, dropping to a six-week low, as markets remain focused on political developments in France, where President Macron is expected to appoint a new Prime Minister following Lecornu’s resignation.

Investors are relieved that a snap election will be avoided at least for now. Discussions with opposition parties and allies also suggested broad support for passing a budget by the end of the year.

German data was slightly weaker than expected, with exports defying expectations by declining, and imports fell more sharply than expected.

This comes following state drops in German industrial output and factory orders earlier in the week.

The US dollar continues to benefit come French and Japanese political issues.

The U.S. dollar extends its recovery even after the minutes from the September FOMC meeting revealed an almost unanimous agreement to cut rates by 25 basis points amid clear labor market weakness. Officials also support two additional rate cuts before the end of the year, although this will depend on inflation not rising further.

Fed Chair Powell is due to speak later. However, these are pre-recorded remarks and are therefore unlikely to address monetary policy.
 

EUR/USD forecast – technical analysis

The EUR/USD has fallen below its multi-month rising trendline, dropping to a six-week low and testing the 1.1580-1.16 support zone.

Sellers supported by the RSI below 50 will look to take out the support zone and extend losses towards 1.14, the August low.

Should the support zone hold, buyers will look to buy above 1.17 the round number and rising trendline resistance.

(Click on image to enlarge)

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