Why does the British Pound continue to face pressure? Central bank decision imminent, three factors reveal the reasons for depreciation

The recent decline in the GBP exchange rate has been significant. On November 4th, influenced by UK Chancellor Rishi Sunak’s comments on tax hikes, the GBP/USD fell to 1.3010, hitting a nearly 7-month low. Meanwhile, the EUR/GBP surged to its highest level in over two years. As of November 6th, the GBP showed signs of a rebound, but the market remains cautious ahead of the upcoming central bank interest rate decision.

Expectations of Monetary Policy Are a Major Driver of GBP Depreciation

Market expectations for the Bank of England’s direction are shifting. Although most economists anticipate holding interest rates steady at 4% this week (for the second consecutive time), institutions like Barclays, Goldman Sachs, and Nomura Securities suggest policymakers might cut rates to 3.75% due to recent economic data. This divergence itself is a reason for GBP depreciation.

LSEG market data updates investors’ risk assessment—currently, the probability of a rate cut this week is close to 35%, rising to nearly 70% by December. This month-by-month increasing expectation of rate cuts is gradually weakening the buying interest in GBP.

Fiscal Policy Signals Intensify GBP Downward Pressure

Recent comments from UK Chancellor Rishi Sunak have made the rate cut expectations more tangible. Mitsubishi UFJ analysts note that the budget on November 26th is expected to include tax hikes, which, while aiding fiscal compliance, also create conditions for a rate cut by the central bank. In other words, fiscal tightening and monetary easing are progressing simultaneously, adding complexity to the reasons for GBP depreciation.

If the Bank of England indeed cuts rates in December, the GBP could further decline.

Technical and Institutional Perspectives Point to Larger Declines

ANZ’s Catril believes that even if the central bank maintains rates this month, the overall tone will remain dovish, limiting upside potential for GBP. Once GBP/USD breaks below the 1.30 psychological level, the next support could be at the April low of 1.2712.

TD Securities judges that regardless of the central bank’s actions, the GBP faces ongoing pressure. The firm notes that EUR/GBP still has room to rise, reflecting market expectations of policy easing in the UK and relative stability in the Eurozone.

Medium-Term Outlook: GBP Depreciation Will Continue Into Next Year

Mitsubishi UFJ’s forecast is more specific—EUR/GBP is expected to rise to 0.8900 in Q1 2026 and further to 0.9000 in Q2. This indicates that under the cycle of rate cuts, GBP’s depreciation against the euro is expected to persist for several months.

In summary, the reasons for GBP depreciation stem from changing policy expectations, confirmation of fiscal signals, and technical vulnerabilities. With multiple factors converging, a short-term rebound for GBP is unlikely. The market is now waiting to see if the November rate decision can bring surprises, but current market pricing has already fully priced in the likelihood of such surprises.