The Pound Sterling (GBP) weakened further on Tuesday, sliding toward 1.3070 against the US Dollar (USD), as traders grew cautious over potential tax hikes and the UK’s fiscal outlook. Investors are reacting to warnings from UK Chancellor Rachel Reeves, who signaled that higher borrowing costs could weigh on the economy, prompting expectations of tax increases in the upcoming Autumn Budget.
According to The Sunday Times, Reeves is exploring more than 100 tax and spending measures, focusing on the top third of earners, to cover a £22bn fiscal shortfall. Market participants are also looking ahead to the Bank of England’s (BoE) monetary policy announcement on Thursday. While the BoE left interest rates unchanged at 4% in September, it expects inflationary pressures to peak at roughly 4%.
Reeves commented that “inflation has been too slow to come down,” highlighting the risk of rising borrowing costs. She emphasized that the forthcoming Autumn Statement will prioritize measures to bring down inflation.
USD Strength Limits GBP Gains
The GBP/USD pair fell below 1.3100 during European trading as the US Dollar held firm amid declining expectations of further Federal Reserve rate cuts this year. The US Dollar Index (DXY) edged down slightly to 99.85 after hitting a three-month high near 100.00.
According to the CME FedWatch tool, the probability of a 25-basis-point Fed rate cut in December has dropped to 67.3% from 94.4% last week. Traders adjusted expectations following Fed Chair Jerome Powell’s remarks that the December decision is “far from a foregone conclusion.” San Francisco Fed President Mary Daly also noted that the policy will be guided by incoming data, adding that monetary policy remains modestly restrictive given inflation above the 2% target.
Investors are now turning their attention to the US ADP Employment Change report for October, set for release Wednesday. Economists forecast a modest 24,000 increase in private sector jobs, following September’s loss of 32,000. Strong employment data could strengthen the USD further by reducing the likelihood of additional Fed rate cuts.
Technical Outlook
Technically, GBP/USD remains bearish, trading below the 200-day Exponential Moving Average (EMA) of 1.3279. The 14-day Relative Strength Index (RSI) has fallen below 30, signaling downward momentum. Immediate support lies at the psychological 1.3000 level, while resistance is seen around the October 28 high of 1.3370.
Key Economic Indicator: ADP Employment Change
The ADP Employment Change measures private sector employment in the US and is closely watched by traders as a precursor to the official Nonfarm Payrolls data. A strong reading is typically USD bullish, as it implies robust consumer spending and potential inflationary pressures, influencing Fed policy decisions.
Next Release: Wednesday, Nov 5, 2025, 13:15 EST
Consensus: +24K | Previous: -32K
