GBP/USD Weekly Forecast and Analysis: Bearish Bias Reinforced by UK Fiscal Risks and Dovish BoE Expectations

The GBP/USD pair remains under bearish pressure as investors weigh the dual risks of UK fiscal uncertainty and the Bank of England's (BoE) dovish monetary policy. With the UK Autumn Budget on November 26, 2025, and the BoE's anticipated rate-cutting cycle in 2026, the pound faces a challenging outlook against the US dollar. This analysis synthesizes recent expert insights to outline the key drivers of the bearish bias and their implications for short- and medium-term positioning.

UK Fiscal Risks: A Double-Edged Sword

The UK government's fiscal strategy is a critical determinant of GBP/USD dynamics. According to a report by MarketPulse, the upcoming Autumn Budget aims to restore fiscal credibility through stealth taxes, including higher capital gains levies and potential mansion taxes, to address undertaxed wealth and close the fiscal gap. While these measures could stabilize long-term debt trajectories, their implementation carries short-term risks. Political instability or unclear fiscal plans may widen risk premiums on UK assets, increasing borrowing costs and eroding investor confidence in sterling.

According to ING Think, a budget perceived as lacking in fiscal discipline could trigger a sell-off in UK gilts, further weakening the pound. Conversely, a credible path to fiscal sustainability-such as the Office for Budget Responsibility's (OBR) revised 1.5% GDP growth forecast for 2025-might temporarily bolster GBP/USD by signaling improved economic resilience. However, this optimism is tempered by concerns over back-loaded tax measures and persistent inflationary pressures, which could delay meaningful rate cuts by the BoE.

BoE Dovishness: A Tailwind for GBP/USD Weakness

The BoE's dovish stance remains a cornerstone of the bearish case. As stated by M&G Research, the central bank is expected to initiate rate cuts in December 2025, with further easing anticipated in 2026. This dovish trajectory is driven by disinflationary trends, including weaker-than-expected inflation data and a softening labor market. Market participants have already priced in approximately 17 basis points of easing by year-end, with the BoE's "gradual" approach to rate cuts reinforcing expectations of prolonged low-interest-rate environments.

The impact of this policy is evident in GBP/USD's recent performance. A report by Currency Solutions notes that the pair has drifted lower amid shifting policy expectations, with the BoE's dovish communication and fiscal tightening in the Autumn Statement exerting downward pressure. While short-term resilience-such as GBP/USD trading near 1.3130-has been observed due to broader dollar weakness, the long-term trajectory remains bearish. This is particularly true if the Federal Reserve maintains a more cautious stance on easing, widening the interest rate differential between the UK and the US.

Combined Impact: Fiscal and Monetary Pressures Converge

The interplay between UK fiscal policy and BoE dovishness is expected to amplify GBP/USD's bearish bias. FX Street analysts outline four potential scenarios for the pound, emphasizing that a dovish BoE and tighter fiscal policy could push GBP/USD below 1.3100, while inflationary budget decisions might temporarily lift the pair toward 1.3300–1.3400. However, the likelihood of the former scenario is higher, given the BoE's commitment to rate cuts and the UK's ongoing fiscal challenges.

Technical indicators also support this view. GBP/USD is currently testing key levels around 1.3150, with a breakdown below 1.3100 signaling further depreciation toward 1.2900–1.3000. Meanwhile, the US dollar's weakness-driven by soft economic data and expectations of a Fed rate cut in December-provides only temporary relief for GBP/USD, masking the underlying structural headwinds.

Conclusion: Strategic Positioning for a Bearish Outlook

Investors should remain cautious on GBP/USD in the near term, with the pair likely to face downward pressure through 2026. Key events to monitor include the UK Autumn Budget on November 26, which could either reinforce fiscal credibility or exacerbate market jitters, and the BoE's December policy decision, which may confirm the first rate cut in its dovish cycle. Positioning strategies could include shorting GBP/USD against the dollar or hedging long positions with options near critical support levels (e.g., 1.3100).

The bearish bias is firmly rooted in the convergence of UK fiscal risks and BoE dovishness, both of which are expected to erode the pound's value against the dollar. As the year progresses, market participants must stay attuned to evolving fiscal policy and central bank signals to navigate this challenging environment.