Sterling Swings versus Dollar, Euro Ahead of UK Budget
The British pound, or the sterling, traded on a mixed note against the United States (U.S.) dollar, euro and Japanese yen in the forex market ahead of the UK budget.
The British pound declined versus the US dollar but was relatively steady against the European single currency after weak sales data in the week and sharp fluctuation in the purchasing manager index (PMI).
The Pound to Dollar exchange rate ended the week at 1.3102, a touch higher after several sessions in which Sterling repeatedly recovered dips from the low-1.30s.
GBP/USD traded between 1.3060 and 1.3155, with markets showing a willingness to buy Sterling ahead of next week’s UK Budget and the Bank of England’s 18 December decision.
Chancellor Rachel Reeves is set to present the 2025 Autumn Budget on 26 November that could rank among the most significant in recent years. There has been speculation about the tax changes that could be unveiled at the Chancellor’s Autumn Budget on 26 November 2025.
This is against the backdrop of an expected downgrade in the OBR’s growth forecast and the resulting rumours of a “black hole” in the public finances, estimated to be in the tens of billions of pounds.
Sterling dipped as markets reacted negative to sales report. The UK reported a sharper than expected decline in October retail sales and a softer preliminary November PMI.
Details from statistics office showed that UK retail sales fell by 1.1% after posting a revised 0.7% (initially 0.5%) increase in September. Excluding gasoline, retail sales fell by 1.0% versus +0.7% in October. Unlike most other countries, British retail sales are reported on a volume not price basis.
FX markets are fully pricing a Bank of England rate cut on 18 December and another by mid-2026, but several monetary policy members have recently questioned how much easing will ultimately be necessary.
Meanwhile, the Euro to Pound (EUR/GBP) exchange rate closed the week at 0.878906, down 0.30%, but still holding close to recent highs after a month in which the pair pushed above 0.88.
However, the Euro to US Dollar exchange rate (EUR/USD) drifted lower through last week, ending around 1.1515 and near two week lows. The markets have priced in fiscal risk premium into Sterling ahead of the UK’s 26 November Autumn Budget.
UBS expects that premium to unwind once the government sets out a clearer fiscal path. The bank believes a budget focused on restoring credibility and increasing headroom should allow EUR/GBP to slip back toward 0.87 by year-end, reversing part of the politically driven move higher seen through November.
The Office for Budget Responsibility (OBR), the UK’s fiscal watchdog, has downgraded its UK trend productivity growth forecast.
Analysts said the government will need to raise another £6 billion to cover policy U-turns on welfare reforms and winter fuel payment cuts since the Spring Statement in March. Recent reports put the fiscal hole close to £20 billion, which is lower than earlier estimates of £20–30 billion. Dangote Cement Plunges as Investors Trim Shareholding
