The GBP/USD pair continued its upward movement, hitting 1.3189, as market participants anticipate the specifics of the UK budget, which is set to be unveiled today, 26 November. The focus is squarely on Chancellor Rachel Reeves and her approach to addressing the fiscal deficit while complying with the government’s established budgetary guidelines. This challenge necessitates identifying tens of billions of pounds in savings or revenue. Market volatility has been heightened by reports indicating that the government might sidestep immediate tax increases. The financial landscape is worsening, with reports indicating that the Office for Budget Responsibility is set to revise its growth forecasts downward for 2026 and the years that follow. This adjustment may expand the budget deficit by £20–30 billion, thereby amplifying the enduring pressure for tax increases. Recent macroeconomic data highlights the economy’s vulnerability, as public sector borrowing continues to reach unprecedented levels beyond the pandemic era, business activity is experiencing a slowdown, retail sales have seen a significant decline, and consumer confidence is diminishing.
In the current economic environment, October’s inflation figure decreased to 3.6%, reinforcing anticipations for a potential easing of monetary policy, with current market expectations indicating an 80% likelihood of a 25-basis-point rate reduction by the Bank of England in December. On the H4 chart, GBP/USD has decisively surpassed 1.3116, finalizing a corrective wave structure to 1.3210, and we now expect a retracement to revisit the 1.3116 level from a higher position. After this retest, the final phase of the correction may drive the pair down to 1.3215. Upon the conclusion of this corrective phase, the primary downtrend is anticipated to continue, with the next significant target for the upcoming phase of selling positioned at 1.2911. The MACD indicator reinforces this perspective; its signal line is positioned above zero and trending upwards, indicating that the existing corrective strength may be a precursor to an impending downtrend.
On the H1 chart, the pair has broken upwards from a notable consolidation range near 1.3123, achieving its initial target at 1.3210, and a pullback to revisit 1.3123 is now anticipated. A final upward movement to 1.3215 is anticipated, at which stage the potential for correction is expected to be fully utilized. We anticipate the initiation of a fifth wave of decline, which is generally robust, with a target set at 1.2911. The Stochastic oscillator validates this scenario, with the signal line positioned in overbought territory above 80 and beginning to decline, indicating that the existing upward momentum is waning.
The pound’s strength appears tenuous, influenced more by budget speculation than by any fundamental changes. The pre-budget rally is interpreted as a corrective bounce amid a larger bearish trend, with the pair nearing a significant resistance level around 1.3215. We expect this level to limit gains and create a selling opportunity, setting the stage for a continuation of the downtrend with a preliminary target at 1.2911. The budget details and the BoE’s subsequent December meeting will play a crucial role in shaping the pound’s medium-term trajectory.