The British pound exchange rate faces dual pressures, with a downward adjustment in the outlook

In early December, the GBP/USD briefly rose to 1.3350, hitting a recent high with a gain of 1.08%. The main driver behind this rebound was the dollar's weakness—US November ADP employment data fell short of expectations, coupled with signals from the Trump administration regarding the Federal Reserve Chair, leading the market to reprice the likelihood of Fed rate cuts. Meanwhile, after the UK budget announcement, market concerns about UK bonds were temporarily alleviated, resulting in a technical rebound demand for the pound.

However, this rebound may be short-lived. Goldman Sachs and Deutsche Bank have both issued warnings, believing that the long-term trend of the pound is hindered by structural issues. The Bank of England plans to implement two more rate cuts before June next year, lowering the policy rate to 3.5%, indicating that the easing cycle is nearing completion. At the same time, fiscal pressures in the UK are mounting—expenditures are expected to rise sharply over the next two years, followed by the need for austerity measures. This combination of "rate cuts + fiscal tightening" is extremely unfavorable for the GBP exchange rate.

Deutsche Bank points out that the UK budget issues will trouble the market in the long term, with negative signals potentially coming continuously. In the absence of clear solutions, this shadow will continue to weigh on the pound. Goldman Sachs emphasizes that risks in the UK labor market are rising, further lowering interest rate expectations, which adds additional downside pressure on the pound. Compared to other G-10 currencies in Europe, the pound's disadvantages are more apparent.

Based on this logic, Goldman Sachs has adjusted its EUR/GBP exchange rate forecast. In the short term (3 months), EUR/GBP is expected to rise to 0.89; in 6 months, to 0.90; and after one year, further up to 0.92. This indicates that, in the view of institutions, the pound faces a clear depreciation pressure. Although the Organization for Economic Co-operation and Development (OECD) has raised the UK's 2026 growth forecast to 1.2%, the mismatch between fiscal and monetary policies has become an irreversible situation. Regarding the pound's outlook, short-term rebounds do not alter the fundamental long-term downward pressure.