GBP/USD Forecast: Pound Sterling Below 1.33 after UK Autumn Budget

– Written by


David Woodsmith

STORY LINK GBP/USD Forecast: Pound Sterling Below 1.33 after UK Autumn Budget

The Pound to US Dollar (GBP/USD) exchange rate struggled for direction on Wednesday as investors assessed the UK’s Autumn Budget and awaited the Federal Reserve’s latest interest rate decision.

At the time of writing, GBP/USD was trading at approximately $1.3297, marginally below Wednesday’s opening levels.

The Pound (GBP) struggled to attract support after Chancellor John Healey delivered his first Autumn Budget, with the announcement offering few surprises capable of shifting expectations for the UK economy.

Healey outlined measures aimed at easing financial pressures on households and businesses, alongside funding for Prime Minister Andy Burnham’s regional devolution agenda.

However, the Chancellor adopted a relatively cautious approach to taxation and public spending, reflecting the constraints imposed by elevated borrowing costs and the government’s limited fiscal headroom.

The absence of major policy surprises initially left Sterling trading within a narrow range.

The Pound subsequently edged lower as investors turned their attention to updated economic forecasts accompanying the Budget.

Revised projections pointed to a sharper slowdown in UK economic growth during 2027 than previously anticipated.

The Office for Budget Responsibility (OBR) also warned that the country’s fiscal challenges had intensified since its previous assessment in March.

The weaker outlook raised questions about the government’s ability to support economic activity while maintaining control of public borrowing.

For Sterling, the concern is that slower growth could weaken tax revenues and place further pressure on the Treasury’s finances, potentially limiting the Bank of England’s room to pursue additional monetary tightening.

Nevertheless, the relatively measured nature of Healey’s Budget appeared to prevent a more pronounced sell-off in the Pound.

The US Dollar (USD), meanwhile, traded within a narrow range as investors awaited Wednesday evening’s Federal Reserve interest rate announcement.

Policymakers are widely expected to leave borrowing costs unchanged at 18:00 GMT, following September’s 25-basis-point increase, which marked the first US rate hike in three years.

With the decision largely anticipated, attention will focus on the accompanying policy statement and comments from Fed Chair Kevin Warsh.

Persistent US inflation has strengthened expectations that the central bank could maintain a relatively hawkish stance, even if policymakers decide against another immediate increase.

Any indication that officials remain concerned about underlying price pressures could revive expectations for a December rate hike, potentially providing renewed support for the Dollar.

Conversely, a more cautious assessment of the economic outlook could reduce expectations for further tightening and leave the US currency vulnerable to selling pressure.

Near-Term GBP/USD Forecast: US GDP and Fed Guidance Could Test $1.33

The Pound to US Dollar exchange rate could experience increased volatility as investors digest the Federal Reserve’s latest policy announcement and Thursday’s US economic growth figures.

Preliminary third-quarter GDP data are expected to show annualised growth accelerating from 2.2% to 3.2%, suggesting the American economy maintained considerable momentum through the summer.

A stronger-than-expected reading could reinforce expectations that the Federal Reserve has room to raise interest rates again, potentially lifting the Dollar.

Combined with hawkish guidance from Wednesday’s policy meeting, robust GDP figures could put additional pressure on GBP/USD.

The $1.3300 level remains an important near-term reference point, with a sustained move below this area potentially exposing the $1.3250 region.

However, disappointing US growth figures or a less hawkish message from the Fed could allow Sterling to recover towards $1.3350.

For the Pound, investors will continue assessing the implications of Wednesday’s Autumn Budget.

The reaction of UK government bond markets will be particularly important, with any renewed increase in gilt yields potentially signalling concerns about the outlook for public borrowing.

A stable bond market response could offer Sterling some reassurance, while further evidence that the UK’s growth prospects are deteriorating may limit the currency’s ability to recover.

With both the Federal Reserve’s policy outlook and the UK’s fiscal position under scrutiny, GBP/USD may remain sensitive to changes in interest rate expectations over the coming sessions.

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TAGS: Pound Dollar Forecasts