The British Pound (GBP) continues to underperform against major currencies, hitting a fresh two-month low near 1.3280 against the US Dollar (USD) during Friday’s European session. The decline is driven by growing concerns over potential tax increases in the UK and broader economic uncertainty.
Tax Hike Speculation Weighs on Sentiment
Investors are bracing for potential fiscal tightening in the UK as Chancellor Rachel Reeves is expected to propose new tax measures in the upcoming Autumn Statement, scheduled for late November. Market speculation centers on possible wealth taxes or further increases in employers’ National Insurance (NI) contributions, which were already raised from 13.8% to 15% in the last budget.
The previous NI hike significantly slowed labor demand, with businesses cutting back on hiring to offset rising employment costs. A fresh tax burden—especially after pre-election pledges not to raise taxes—could raise questions about the Labour government’s fiscal credibility and weigh on household and business sentiment.
BoE’s Mann Maintains Hawkish Tone
Despite the Pound’s weakness, Bank of England (BoE) Monetary Policy Committee member Catherine Mann struck a hawkish tone on Thursday. She argued for maintaining higher interest rates for longer, citing persistent upside risks to inflation:
“The evidence from consumer behaviour is that we are not there yet,” Mann said, stressing that inflation pressures remain unresolved.
Investors are also awaiting the UK employment report for the three months ending August, due next Tuesday, for further guidance on labor market conditions.
USD Remains Firm Despite Dovish Fed Remarks
The US Dollar continues to trade near two-month highs, with the US Dollar Index (DXY) holding around 99.56 amid geopolitical uncertainty in France and Japan, which has driven safe-haven demand.
Despite this strength, markets are increasingly pricing in rate cuts from the Federal Reserve before year-end. The CME FedWatch Tool indicates an 81.5% probability of a 50 bps cut, bringing the target rate to 3.50%–3.75%.
On Thursday, Fed officials John Williams and Mary Daly signaled the need for further rate cuts due to weakening labor market conditions. However, Fed Governor Michael Barr urged caution, stating inflation is unlikely to return to the 2% target within the next two years.
Markets now await key US data releases later today, including the preliminary Michigan Consumer Sentiment Index and Consumer Inflation Expectations for October (14:00 GMT).
Technical Outlook: GBP/USD Turns Bearish
- Support: The next key support lies at the August 1 low of 1.3140.
- Resistance: On the upside, the psychological level of 1.3500 acts as a major hurdle.
- Indicators: The pair is trading around the 200-day Exponential Moving Average (EMA) near 1.3280, and the 14-day RSI has dropped below 40.00, indicating renewed bearish momentum.
