GBP/USD has hit its lowest point since April due to new fiscal policies. UK Chancellor Rachel Reeves has announced possible tax increases in the Autumn Budget on November 26, which may prompt the Bank of England to ease its stance further. Market predictions indicate that the Bank of England might lower rates by 25 basis points to 3.75%. However, any decisions on these cuts are expected after the budget. Currently, UK inflation is higher than the Bank of England’s target of 2%. Forecasts suggest that the UK’s Q3 real GDP growth, expected on November 13, may exceed the Bank of England’s estimate of 0.3% quarter-on-quarter. The anticipated tax hikes in the budget on November 26 are affecting our outlook on the pound. This tightening is likely to slow the economy, potentially allowing for more aggressive rate cuts from the Bank of England than the market predicts. As a result, we expect further GBP weakness against the dollar. With the Bank of England’s next meeting on Thursday, we are wary of an immediate rate cut. UK inflation remains high, with September 2025 figures showing it at 3.8%, well above the 2% target. We believe the central bank will wait for more details on the budget before making any moves, making this week’s meeting more focused on guidance than immediate policy changes. For options traders, the upcoming weeks offer a chance to take advantage of event-driven volatility. Implied volatility for GBP/USD options expiring after the November 26 budget is expected to rise due to uncertainty. We might consider buying put options to bet on a drop in sterling or a straddle if we foresee a substantial move in either direction after the budget. We remember the market’s strong reaction to the fiscal event in autumn 2022, which highlighted the pound’s sensitivity to budget announcements. Although this time involves tax increases rather than unfunded cuts, the principle that fiscal policy can greatly impact monetary policy and currency remains unchanged. This historical context strengthens our belief that the November 26 budget could be the key trigger for a significant move in the pound. Beyond currency trading, the interest rate derivatives market provides a direct way to implement this view. Current market pricing suggests about 50 basis points of cuts over the next year, which we think is too cautious given the expected fiscal constraints. We see potential in positions that could benefit from a faster pace of easing, such as buying SONIA futures contracts for 2026.

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