GBP/USD sank to April lows as Chancellor Reeves signaled upcoming tax increases, potentially paving the way for more Bank of England easing after the November 26 budget, BBH FX analysts report.

Chancellor Reeves signals tax hikes in autumn budget

"GBP/USD plunged to the lowest level since April. UK Chancellor Rachel Reeve signaled today that tax rises are coming in her Autumn Budget on November 26. The expected fiscal drag should leave room for the Bank of England (BOE) to deliver more easing than is currently priced-in (50bps in the next 12 months) and further weigh on GBP."

"The next BOE policy decision is Thursday, and the swaps market implies 30% odds of a 25bps cut to 3.75%. We expect the BOE to wait until after the budget to resume cutting rates. UK inflation is still nearly double the BOE’s 2% target and leading indicators suggest UK Q3 real GDP growth (due November 13) will overshoot the BOE’s 0.3% q/q projection."