The UK Budget boosts the pound, exchange rate hits recent high

The GBP/USD has recently shown strong performance, breaking through 1.3261 on November 27, reaching a six-day high and marking the highest level in recent months. Meanwhile, the EUR/GBP fell to 0.8745, hitting a one-month low. Behind this rally is a clear signal from UK fiscal policy.

**Budget Surpasses Expectations, Investor Confidence Recovers**

The UK Chancellor of the Exchequer, Jeremy Hunt, announced the budget plan on November 26, which became a key catalyst for the pound's rebound. The plan confirms a total tax increase of £26 billion, while the fiscal buffer is increased to £22 billion, doubling from £10 billion in March. This substantial fiscal buffer provides the UK government with tangible flexibility to respond to future economic shocks, effectively easing market concerns over policy stability.

BlackRock analyst Vivek Paul believes that the UK budget achieves a rare balance, which should boost market confidence and alleviate concerns about potential political risks. Deutsche Bank analyst Sanjay Raja further pointed out that the measures could curb inflation, thereby increasing the likelihood of the Bank of England cutting interest rates — a long-term support for the pound.

**Fiscal Discipline Strengthened, Expectations of Rate Cuts Rise**

Berenberg Bank senior UK economist Andrew Wishart stated that overall data performance is solid. Particularly, the tightening trend of the budget deficit over the next two years lays the foundation for further rate cuts by the Bank of England. This coordination between fiscal and monetary policies is enhancing the attractiveness of the pound.

Raja also reminded that although the budget highlights are significant, the actual implementation timing of fiscal austerity measures remains uncertain, which could raise doubts about policy execution.

**Pound Risks Eased, Short Covering Surges**

Nomura Securities believes that the UK budget has successfully avoided "major negative factors," meaning that the risk premium previously weighing down the pound is dissipating. The institution recommends investors take profits on short positions after the budget announcement. This suggests that the upward momentum of the pound could be further strengthened, and short-term upside potential remains worth watching.