Pound Is Set for Comeback. Forecast as of 20.11.2025
The GBP/USD pair has plunged to April lows on UK tax-hike fears and widening monetary-policy divergence. However, many of these negative factors are already priced in, so the pair may be ready to rebound. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Labour Party can keep its promise.
- The odds of a repo rate cut in December are increasing.
- Negative factors are largely priced into the pound.
- If the GPBUSD pair rises to 1.3095, one may consider long trades.
Weekly Fundamental Forecast for Pound Sterling
Sentiment toward the British pound improved following rumors that the Office for Budget Responsibility might present more optimistic GDP forecasts. These rumors also implied that the UK government was unlikely to raise income taxes. This development helped the pound strengthen against the euro and the Swiss franc. However, the boost was not enough to offset the stronger US dollar. Eventually, the hawkish tone of the FOMC minutes pushed GBP/USD back to its April lows.
Income tax, VAT, and national insurance are the three major taxes the Labour Party pledged not to change during the election. However, a large budget shortfall has raised concerns that this commitment may not hold. Earlier estimates suggested that Rachel Reeves might need as much as £35 billion to close the deficit. Following more optimistic projections from the Office for Budget Responsibility, this estimate may drop to around £20 billion.
UK Budget Changes
Source: Bloomberg.
The possibility of tax increases is already reflected in the pound’s exchange rate, so any positive news tends to support a recovery. Volatility in the currency has surged, and the cost of hedging against an increase in EURGBP and a decline in GBPCHF has reached six-month and four-month highs, respectively. However, the pullback in both pairs following reports that income tax will not be raised suggests the pound may grow significantly later this autumn.
Euro-Pound Volatility
Source: Bloomberg.
The probability of the Fed’s monetary policy easing in December has dropped to 33%, which is not enough to support a stronger GBP/USD. In the UK, GDP growth slowed from 1.1% to 0.3% YoY and from 0.3% to 0.1% QoQ in July–September. Besides, consumer prices decelerated from 3.8% to 3.6% in October. Following these data, the estimated likelihood of the Bank of England raising the repo rate by the end of the year advanced to 80%.
UK Inflation Rate
Source: Bloomberg.
If one central bank maintains its interest rates unchanged while another plans to lower them, capital will flow to the first one. This is why the GBP/USD pair is declining. However, the current decrease is a great opportunity to buy the pound at a lower price.
The expected tax increase on November 26 is largely priced into the pound. Only clearly negative news from Rachel Reeves can push the currency lower. Looking ahead, the Fed is expected to start cutting rates in January. Moreover, data released in early 2026 will likely show that the US economy slowed in Q4 2025.
Weekly GBPUSD Trading Plan
The GBP/USD pair is expected to move higher, so traders can look for entry points now or after the draft budget is released. If the pair fails to hold below $1.301 after breaking that level, or if it climbs above $1.3095, long trades can be considered.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of GBPUSD in real time mode
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