Above: GBP/USD breaks below a key fibonacci support level.
Another unforced error by UK Chancellor Reeves and a stock market drawdown are behind the move.
The pound to dollar exchange rate (GBP/USD) is at risk of sliding below 1.30 in the near-term, warn analysts.
An extension of the broader U.S. dollar rally is driving part of the GBP/USD move, with analysts saying the dollar is in demand owing to a deterioration in global investor confidence.
Investors are selling, and U.S. stock markets look set to retreat further from recent record levels today owing to concerns about rich valuations and a paring back in Federal Reserve interest rate expectations.
"A broad risk-off sentiment at the start of the day also supported the greenback, as market participants express growing concerns over elevated stock valuations. S&P futures are down 1.0%, while Nasdaq futures have declined 1.4%," says Luis Hurtado, a strategist at CIBC Capital Markets.
Market nervousness is also linked to the realisation that the Federal Reserve might not cut rates in December, says Achilleas Georgolopoulos, Senior Market Analyst at Trading Point.
The market currently prices a 67% chance of another 25bps in mid-December, down from the 95% before last week’s meeting.
"All in all, we might be reaching a stage where the absence of official data means no Fed rate cut in December," says Georgolopoulos.
The pound meanwhile fell out of bed this morning after the UK Chancellor Rachel Reeves held an unscheduled press conference in Number 11 Downing Street, warning everyone that they were going to stump up more in taxes at the November 26 budget.
"A tax hike warning, stalling growth presumptions, has amplified recent GBP negativity opening up the strong support at 1.2945 which marks the mid-point of the year-to-date range (1.2100-1.3789) should we clear 1.3041," says Jeremy Stretch, FX strategist at CIBC Capital Markets.
Reeves praised herself for having successfully "fixed the foundations" of the economy at her last Budget, but warned since then "the world has thrown even more challenges our way".
Asked about the manifesto promises not to raise income tax, National Insurance or VAT, she said: "As Chancellor, I have to face the world as it is not the world that I want it to be."
04/11/2025. London, United Kingdom. Chancellor Rachel Reeves delivers a Budget scene setter speech at No 9 Downing Street. Treasury. Picture by Kirsty O'Connor / Treasury.
Businesses, political commentators and economists say this is a point-blank confirmation that rumours of an income tax hike are all but confirmed.
The speech offered no substantive details and looks to have only served to signal a sense of panic, making it something of an unforced error.
UK borrowing costs fell in response, vindicating Reeves' attempts to stabilise the finances.
Falling borrowing costs reveal markets think the decision to squeeze the population for more taxes will lower inflation in the economy (as there will be less to spend).
This in turn opens the door to interest rate cuts at the Bank of England, which weighs on UK bond yields and the pound.
"We are in for a wild few weeks," says Riz Malik, Director at R3 Wealth.