UK Budget Adds to Sterling Headwinds; USD Volatile Ahead of Key Data

Key Macro

• UK / BoE: UK inflation is moderating (3.6%), and Bank of England is holding interest rates at 4%, markets expect a cut at the December meeting. Sterling remains under pressure.
• US / Fed: Federal Reserve cut rates in October to 4%. With a slew of US data ahead (PMI, ADP, PCE) and markets pricing a likely December cut, USD remains volatile.
• Eurozone / ECB: European Central Bank remains steady, with interest rates on hold and no urgency to cut. That helps keep EUR relatively stable vs peers.
• Oil has moved higher on supply side signal (OPEC + decision + geopolitical tension), supportive for commodity linked FX.
• Gold is rising on hopes of further Fed easing and softer real yields, attractive as a risk off / USD hedge asset.

This Week’s Economic Calendar (Key Releases / Events)

Day / Region	Key Data / Event	Why It Matters
Mon 1 Dec	ISM Manufacturing PMI (US) + final manufacturing PMIs (EUR, UK, US)	Insight into manufacturing activity, may influence Fed & ECB expectations, risk sentiment.
Tue 2 Dec	Eurozone CPI (flash), eurozone unemployment rate; UK Nationwide house prices (Nov)	Key for ECB stance + for markets tracking inflation and consumer trends in Euro-area/UK.
Wed 3 Dec	ADP Nonfarm Employment Change + US Services PMI; final eurozone & UK Services PMIs	Provides a view on labour markets and services activity, important ahead of Fed / BoE.
Thu 4 Dec	(Generally lighter for major releases per current schedules)	Lower volatility day, but markets may still react to company news or geopolitical headlines.
Fri 5 Dec	US Core PCE Price Index (inflation gauge); finishing US data slate before weekend	Core PCE is the Fed’s preferred inflation metric, a strong release could shift market expectations for rate cuts.

Market Takeaways

• GBP under pressure: with markets leaning toward a BoE rate cut, watch for UK specific prints (especially PMI, housing data), weak data likely to weigh on GBP further.
• USD remains sensitive: US manufacturing, jobs, and PCE readings will shape expectations of further Fed easing. A hawkish surprise could quickly strengthen the dollar; a soft print could weaken it.
• EUR might find support: if eurozone inflation or unemployment surprises as stable/soft, EUR could firm, especially if ECB signals steady rates.
• Gold & commodity linked FX (e.g. CAD, AUD, NOK) stand out: gold benefits from potential Fed dovishness, while oil linked currencies could respond to any fresh supply or geopolitics headlines.

What came out of the UK Budget — key highlights

• The Autumn Budget 2025 (announced 26 Nov) plans to raise roughly £26 billion via a mix of tax and wealth related measures, pushing the UK tax burden to a post war high (~38 % of GDP).
• Major moves include freezing income tax thresholds (rather than raising rates), new taxes on high value properties (“mansion tax”), higher taxes on dividends and savings, and additional levies on electric vehicles and gambling.
• On the “cost of living” front, the Budget aims to deliver some relief: e.g. reducing average energy bills by ~£150 from 2026, freezing rail fares (in England) for one year, freezing NHS prescription charges, and modest increases to state pension / welfare benefits.
• The independent forecaster Office for Budget Responsibility (OBR) concluded the Budget gives the government ~£22 billion of “fiscal headroom” by 2029/30,  i.e. some buffer to manage future economic shocks without immediate drastic tax hikes or borrowing.
• Some analysts welcome the headroom as restoring a degree of fiscal credibility, while others downgrade medium term growth and disposable income forecasts, warning that “fiscal drag” and higher taxes could weigh on demand.

How the UK Budget feeds into FX

• The Budget reduces one layer of uncertainty for GBP, but it also tilts structural risks slightly negative (slower growth, weaker demand). That supports our preexisting view that GBP has near term downside risk, especially if the BoE cuts rates in December.
• The modest rally post Budget is unlikely to be a base for long term strength, more a “relief bounce.” Over the next few quarters, unless growth surprises or policy shifts, GBP remains vulnerable to downside pressure.
• If the BoE does move to cut rates (as markets appear to expect), supported by weaker demand, disinflation, and fiscal drag from the Budget, that will further weigh on GBP.

If you have upcoming currency requirements and would like expert guidance on navigating the markets, don’t hesitate to contact one of our consultants at 020 3876 5432.