GBP/USD latest: rate differential to drive the momentum, UK Budget lifts the pound

GBP/USD is currently being shaped by a mix of monetary policy expectations, relative economic performance, and shifting risk sentiment. The Bank of England’s reluctance to cut rates too soon—given sticky services inflation and still-firm wage growth—had helped underpin the pound, especially as the Federal Reserve edged gradually toward easing. However, markets now expect the BoE to commit to further easing into 2026, suggesting the rate differential gap may not narrow further, limiting the upside in GBP/USD. Risk appetite is another crucial driver as when global markets are optimistic, the pound tends to benefit, while risk-off periods typically strengthen the dollar as investors seek safety.

Rachel Reeves’ 2025 Budget has added an important fundamental layer to the pound’s recent performance. By focusing on plugging the fiscal gap through higher taxes while committing to long-term investment, the government has eased some market concerns about the UK’s fiscal credibility. Gilt prices have risen, yields have fallen, and sterling has gained against major peers as investors welcome the more disciplined stance. Measures such as the freezing of income-tax thresholds effectively tighten fiscal policy over time, providing near-term support for GBP. 

However, underlying growth concerns remain a limiting factor. Much of the expected revenue is backloaded, borrowing costs are still high, and the UK’s medium-term growth outlook is uncertain, meaning the Budget’s supportive impact on GBP may not persist unless investment translates into stronger productivity and economic momentum.

Looking ahead, traders will be watching several key factors for direction. Bank of England communication will be crucial: any hints that policymakers are in fact planning to cut rates further in December could weigh on the pound, while persistent inflation pressures may keep GBP supported. In the US, major data releases continue to be delayed, so Fed commentary will steer the dollar.

Domestic UK growth data and the government’s follow-through on its investment strategy will also matter, as markets seek evidence that fiscal plans can deliver sustainable improvement. Broader risk sentiment will remain a swing factor, with risk-on environments favouring GBP/USD and defensive market episodes boosting the dollar. 

Key technical levels to watch include resistance around 1.3200 and 1.3275, and support near 1.3040 and 1.3010.

GBP/USD daily chart

Past performance is not a reliable indicator of future results.