The GBP/USD pair has dropped to 1.3220. This decline follows reduced liquidity and profit-taking after the Autumn Budget, along with growing expectations of a Federal Reserve rate cut. The chance of a 25-basis-point cut at the Fed’s December meeting has risen to 87%. Meanwhile, the UK government is planning to raise taxes by £26 billion to support additional welfare spending. Despite an almost 1% gain this week, GBP/USD faces selling pressure after reaching a high of 1.3268. Predictions suggest the pair may fall below 1.3200, as market players expect a 25-basis-point cut from the Bank of England, which could further affect the pair.

Technical Analysis

Technical analysis shows a potential decline in GBP/USD, indicated by an ‘evening star’ pattern. If the pair closes below 1.3200, it could lead to more losses, with the 20-day SMA at 1.3139 acting as a key support level. The RSI is turning bearish, indicating increased momentum for sellers. This month, the British Pound has performed well against the Japanese Yen, increasing by 1.39% against the USD. However, its performance against other major currencies, such as the EUR and CAD, has varied. The heatmap shows percentage changes among major currencies, highlighting relationships between base and quote currencies. Bearish sentiment is building against the Pound, influenced by the new budget and differing expectations from central banks. The technical signals, including the evening-star pattern, suggest the recent peak of 1.3268 may not be reached again soon. This environment favors strategies that profit from a decline in the GBP/USD exchange rate. The government’s tax increase plan is creating obstacles, as money markets are now anticipating a Bank of England rate cut. With UK inflation recently dropping to 3.8% in October 2025, down from over 4.5% earlier in the year, the BoE has more flexibility to consider easing policy. This fundamental backdrop is expected to weaken the Sterling in the short term.

Market Sentiment

On the other side, bets for a Federal Reserve rate cut have surged to 87% following dovish comments from officials. However, the US economy appears stronger, with initial jobless claims staying low at 216,000 and core inflation at 3.2%. For now, the market seems more concerned about the Pound’s vulnerabilities than any potential weakness in the dollar. For derivative traders, this outlook suggests preparing for a drop below the 1.3200 level. Buying GBP/USD put options with strike prices around 1.3150 or 1.3100 could be a good strategy to take advantage of the expected decline. The 20-day simple moving average at 1.3139 is the first major target for any bearish positions. While the overall view is bearish, it’s worth noting the Pound’s recent strength against currencies like the Japanese Yen, which saw a 1.98% increase this past month. Traders should consider the resistance at the 50-day moving average near 1.3280 when setting stop-losses on short positions. Any unexpected hawkish signals from the Bank of England could quickly change this bearish outlook. Create your live VT Markets account and start trading now.

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