GBP/USD Forecast: Pound Sterling Slips Below Scotiabank Support

Pound Sterling has slipped below Scotiabank’s near-term support area as the UK Budget approaches, although the bank still sees buyers returning on dips.

Pound Sterling slipped below a near-term support area on Monday, putting Scotiabank’s warning of a retreat towards $1.33 into focus before Wednesday’s UK Budget.

The Pound-to-Dollar exchange rate was trading at $1.3347, down 0.22% on the day and just beneath the bank’s $1.3350-$1.3355 reference zone.

Its strategists label the short-term outlook neutral to bearish: “GBP gains through the low 1.34 area late last week may have stalled and price may be reversing modestly with minor support at 1.3350/55 under a little pressure. Spot losses may extend to the 1.33 area below here.”

The $1.33 reference is a conditional technical projection with no fixed date, not a year-end forecast.

Scotiabank has not abandoned the more constructive signal from Pound Sterling’s mid-October rebound.

“Broader price action is positive, following the solid mid-October rebound from the low 1.31 area, however. Modest GBP losses should entice support from bargain-hunters.”

A credible Budget may deliver little fresh currency support

Chancellor John Healey’s 28 October Budget comes against higher debt-servicing costs, with updated official forecasts accompanying the statement.

Scotiabank’s assessment suggests investors already expect a broadly reassuring outcome.

“The UK weekend press coverage of Chancellor Healey’s Wednesday budget announcement centered mostly on the need for the government to maintain fiscal credibility.”

The bank adds: “More social spending will have to be balanced by revenue increases (with a higher surcharge on bank profits above GBP100mn thought likely).”

The possible bank surcharge is part of that pre-Budget discussion, not an announced measure.

Scotiabank says: “Despite sterling’s drift today, most commentators assume that Healey will deliver a credible budget which may be largely sterling-neutral. Front-end GBP vols are, however, relatively elevated, suggesting investors are cautious.”

Those short-dated measures of expected exchange-rate volatility indicate investors are still allowing for movement around the announcement, despite the broadly calm fiscal assumption.

The Budget is only half of Wednesday’s test for GBP/USD, with the Federal Reserve’s October meeting ending that day too.

In its Monday assessment, Scotiabank recorded little expected tightening at that meeting but much more for December: “Expectations for this week’s meeting are muted with short-term rates markets only pricing about 2bpts of tightening while December is priced for 22bpts.”

Guidance that sustains expectations of another US increase could support the Dollar even if the UK Budget avoids unsettling investors.

What This Means for GBP/USD

At $1.3347, Pound Sterling is already marginally below the support Scotiabank identified. Continued trading beneath that area would keep the bank’s $1.33 downside scenario relevant, while a recovery above it would reduce the immediate pressure.

The bank still expects modest declines to attract buyers. A credible Budget could help that response, but its own assessment suggests fiscal reassurance is already the prevailing expectation, limiting the case for assuming an automatic rally.

The US decision could therefore determine whether a calm UK outcome is enough to stabilise the pair. Stronger signals for December Fed tightening would test the resilience of the mid-October recovery even without a domestic fiscal surprise.

Exchange Rates UK Research

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