The GBP/USD pair rose during Asian trading hours, reaching around 1.3060 as the Pound Sterling gained support ahead of the Bank of England’s (BoE) interest rate decision. The BoE is likely to keep the policy rate at 4% in November. Softer inflation and wage data suggest that rate cuts could happen in the future. Chancellor Rachel Reeves is expected to announce stricter fiscal measures in her upcoming budget to tackle the UK’s significant borrowing needs. She has hinted at possible tax increases to help manage debt and borrowing costs.

Technical Floors and Price Movements

On Wednesday, GBP/USD found a weak support level and stabilized just above 1.3000 after weeks of decline. The pair is trading around 1.3050 on Thursday, down over 3% from its mid-October high of 1.3470 and has experienced losses in the majority of the last 13 trading days. After a 0.90% drop on Tuesday due to concerns over potential tax increases, GBP/USD is steady at 1.3028. Reeves’ comments have raised questions about future tax changes, and analysts believe tough budget decisions may not align with past promises. GBP/USD is holding above 1.3050, but the market is tense with the Bank of England’s rate decision approaching. While many expect the BoE to keep rates at 4% today, the attention is really on future moves. With the central bank meeting and the budget announcement on November 26th, we may see increased volatility. There are growing signs that the Pound could weaken in the future, suggesting traders might prepare for a downturn. Recent data from the Office for National Statistics showed UK inflation for October 2025 dropped to 3.8%, which puts pressure on the BoE to consider rate cuts next year. Interest rate swaps now indicate at least a quarter-point cut might happen by the second quarter of 2026, showing a significant change in market sentiment.

Fiscal Jitters and Market Volatility

Chancellor Reeves’ discussion of tax increases to address a projected £110 billion fiscal deficit is creating concern in the markets. This situation reminds traders of the market turmoil after the “mini-budget” in 2022, leading them to hedge against similar instability. This financial uncertainty is a major challenge for the Pound, regardless of the BoE’s decision today. Given these two major risks, buying volatility appears to be a wise choice. One-month implied volatility for GBP/USD has jumped from 7% to 9.5% in recent weeks, indicating that the market is preparing for a significant price move. Traders could consider buying straddles or strangles to benefit from a swing in either direction after the budget is revealed. For those expecting a decline, buying put options is a straightforward way to bet on a drop in the Pound. December expiry puts with a strike price below the key 1.3000 level could offer both protection and profit opportunities. This approach limits risk while preparing for a possible downturn due to a tighter budget or a dovish BoE outlook. Create your live VT Markets account and start trading now.

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